This book describes the reforms needed to move small middle-income countries in sub-Saharan Africa to advanced-economy status. The result of intense discussions with public officials in the countries covered, the book blends rigorous theory, econometrics, and practitioners' insights to come up with practical recommendations for policymakers. It spans topics from macroeconomic vulnerability and reserve adequacy to labor market institutions and financial inclusion. The book is a must-read for researchers interested in the economic issues facing developing countries in sub-Saharan Africa.
This Selected Issues paper analyzes policies that can raise potential growth in small middle-income countries (SMICs) of sub-Saharan Africa (SSA). The findings suggest that although macroeconomic stability and trade openness are necessary for productivity growth, they are not sufficient. SMICs in SSA need to improve the quality of their public spending, most notably on education, to solve the problem of skill mismatch in the labor market, reduce the regulatory burden on firms, improve access to financing by small and medium-size enterprises, and pave the way for structural transformation in these economies. Given the short-term cost of these reforms, the timing and sequencing of reforms and the role of quick wins is important for their implementation. In some cases, a social bargain can be a mechanism to generate consensus around a package of mutually reinforcing reforms.
Mr. Lamin Y Leigh, Mr. Ali M. Mansoor, Friska Parulian, and Mr. Andrew W Jonelis
Sub-Saharan Africa has experienced strong growth since 1992, prompting many observers to argue that the region has reached a turning point in its development history and is poised to play a more significant role in the global economy (often called “Africa Rising”). However, economic development among the sub-Saharan African countries varies widely; the majority are still low-income countries (LICs), of which some are fragile states, and the rest are middle-income countries (MICs).
The turbulence in global markets in the past few years underscores the importance of reassessing the adequacy of international reserves, including for small middle-income countries (SMICs) in sub-Saharan Africa. Many of these countries tend to be much more susceptible to global shocks and outward spillovers given their less diversified economies, open capital accounts, and lower fiscal policy buffers (see Box 2.1 and Figure 2.1). Reflecting the fixed costs of operating an independent monetary policy or their lower levels of financial intermediation, they have mostly opted for intermediate regimes, such as soft or hard pegs, and therefore do not have domestic policy levers beyond fiscal policy to react counter-cyclically to shocks.1 Without the buffer of nominal exchange rate flexibility, and given their higher exposure to macroeconomic volatility, maintaining adequate reserves is of particular importance in SMICs. At the same time, some of the SMICs are also working on closing their infrastructure gaps and are grappling with devising best practice macroeconomic and fiscal policy frameworks to help address this challenge while preserving macroeconomic stability. How to address this issue with a less-than-adequate level of reserves coverage in a pegged exchange rate regime amid the current fragile global environment is a key policy challenge.
Policymakers sometimes view the expansion of public employment as a useful tool for reducing high unemployment. This is probably one of the reasons public employment accounts for an important share of total employment in many middle-income countries (MICs). However, in many countries, including small MICs (SMICs), a relatively large government coexists with persistently high unemployment (Box 3.1).
Mr. Lamin Y Leigh, Ara Stepanyan, La-Bhus Fah Jirasavetakul, Mr. Andrew W Jonelis, Ashwin Moheeput, Aidar Abdychev, Friska Parulian, Mr. Martin Petri, and Albert Touna Mama
As indicated in Chapter 1, prudent macroeconomic management and improved institutional settings in many of the small middle-income countries (SMICs) in sub-Saharan Africa resulted in impressive economic performance in the past few decades.1
The financial sector continues to deepen and broaden in many small middle-income countries (SMICs) in sub-Saharan Africa, with global regulatory reform providing input for national regulatory settings. Although the level of financial deepening is broadly on par with many developing countries, financial inclusion tends to lag behind in many SMICs in sub-Saharan Africa, especially when compared with emerging markets.
Thus far, this book has discussed the macroeconomic vulnerability faced by small middle-income countries (SMICs) in sub-Saharan Africa, assessed how labor market outcomes can be improved by reforms that contain spending and crowd in private initiative, looked at structural policies and institutional frameworks that could boost productivity growth in these SMICs, and provided suggestions about financial inclusion policies that are friendly to stability and growth. This chapter suggests a process to assist reformers in making progress in these areas and on complementary reforms in the social sector.