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Macroeconomic Developments and Prospects in LIDCs
The subdued global economic environment, with a sharp downward adjustment in commodity prices, especially fuel prices (only partially reversed in recent months), is posing a significant threat to economic growth in LIDCs. A recent IMF Policy Paper assesses the extent to which LIDCs have been able to adjust to the “lower for long” commodity prices. It finds the adjustment to be incomplete, though with significant variation in performance and prospects across countries. Fuel exporters are the worst hit due to the large negative terms-of-trade shock. The October 2016 Regional Economic Outlook for Sub-Saharan Africa also flags that growth in sub-Saharan Africa has decelerated sharply in 2016 to its lowest level in more than 20 years. In the context of lower for long commodity prices, it urges a prompt enactment of policy adjustment in the hardest-hit countries, based on a comprehensive and internally consistent set of policies. Countries that are still growing rapidly should rebuild buffers to stem the increase in public debt. A special focus is also drawn on the need to enhance resilience to natural disasters in the region through diversification, adaptation, and insurance.
The incomplete policy adjustment and the deteriorating growth prospects have resulted in rising fiscal and financial stresses, even though, as noted in the October 2016 Fiscal Monitor, public debt levels in most LIDCs are lower than in other country groups. In the worsened economic environment, striking a balance between financing infrastructure spending and preserving debt sustainability has become more challenging. The IMF offers tools to navigate this trade-off, and also provides financial resources to maintain a stable and sustainable macroeconomic position consistent with durable poverty reduction and growth. A recent paper – "Financing for Development: Enhancing The Financial Safety Net for Developing Countries – Further Considerations" – clarifies guidance on combining concessional financing with other Fund resources and assesses adequacy of precautionary support.
Macro-Structural Policies and Income Inequality
Despite sustained economic growth and rapid poverty reduction, income inequality remains stubbornly high in many LIDCs. This pattern is a concern as high levels of inequality can impair growth sustainability and macroeconomic stability, thereby also limiting countries’ ability to reach the Sustainable Development Goals. It is therefore critical to understand how policies aimed at boosting economic growth affect income inequality. Using empirical and modeling techniques, an IMF Staff Discussion Note finds that macro-structural policies aimed at raising growth payoffs in LIDCs can have important
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distributional consequences, with the impact dependent on both the design of reforms and country-specific characteristics. While there is no one-size-fits-all recipe, the note explores how governments can address adverse distributional consequences of reforms by designing policy packages that are both pro-growth and inclusive.
Gender Equality
The IMF hosted a one-day conference on Fiscal Policies and Gender Equality on November 7, 2016. The opening session featured a panel discussion among Ms. Christine Lagarde (IMF); Ms. Phumzile Mlambo-Ngcuka (UN Women); Ms. Laura Tyson (University of California-Berkeley); and Ms. Julie Delahanty (Oxfam Canada). Ms. Lagarde discussed how targeted spending on gender equality promotes women’s empowerment and benefits society as a whole, and emphasized the need to actively shape fiscal policy to achieve gender equality goals. The IMF can play an important role through its research and policy advice on the macroeconomic policy levers that influence women’s economic empowerment. Panelists in other sessions highlighted the issue of filling data gaps, along with discussions on how governments, as major employers, can lead in the move towards gender equality. IMF staff also presented the recently completed global survey of gender budgeting.
MD’s Speech at the Center for Global Development
Speaking at the Center for Global Development, the IMF’s Managing Director, Ms. Christine Lagarde, focused on the development agenda for LIDCs, underscoring the need for greater global cooperation in the face of inward-looking policies. While emphasizing the big progress made by LIDCs in poverty reduction and economic growth, she highlighted three key challenges: demographic pressures, climate change, and the risk of violent conflicts. The policy mix to meet these challenges will have to start with sound macroeconomic management, with a long-term focus on (i) raising resources for development, through broadening the tax base, increasing the level and effectiveness of aid, and reducing transaction costs for remittances; (ii) improving infrastructure by scaling up public investment in a sustainable, transparent and cost-effective manner; and (iii) achieving inclusive growth by raising human capital levels through investments in health and education, improving gender equity, and promoting financial inclusion. Ms. Lagarde emphasized the role the IMF and the World Bank have played and will continue to play in supporting the LIDCs.
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