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International Monetary Fund. Western Hemisphere Dept.

Abstract

Alongside weaker prospects, lower oil prices, and currency swings, global growth remains modest and uneven. The outlook and policy challenges in Western Hemisphere economies are shaped by many of the same factors. First, a substantial fall in oil prices will affect the near-term pattern of growth—positively for the United States, negatively for Canada, and broadly neutral for the region as a whole. In this context, a stronger U.S. dollar has been helpful, but more volatile exchange rates also pose risks. Second, weaker expectations for medium-term growth in many emerging markets and advanced economies dampen current investment. Global and regional growth rates have been marked down, although risks are now more balanced than before. Key policy challenges center on raising actual and potential growth and supporting rebalancing.

International Monetary Fund. Western Hemisphere Dept.

Abstract

Growth in Latin America and the Caribbean slowed to 1.3 percent in 2014 and is projected to dip below 1 percent in 2015. The downturn in global commodity markets remains an important drag on South America’s economies, even as lower oil prices and a solid U.S. recovery support activity elsewhere in the region. Country-specific factors, including weak private sector confidence in Brazil and the intensifying economic crisis in Venezuela, further weigh on the outlook for regional growth. Meanwhile, evidence of economic slack remains limited, underscoring the presence of supply-side bottlenecks. Flexible exchange rates can play a critical role in adapting to tougher external conditions, but policymakers will also need to ensure prudent fiscal positions, keep financial sector vulnerabilities in check, and tackle longstanding structural problems to raise investment, productivity, and potential growth.

International Monetary Fund. Western Hemisphere Dept.

Abstract

The impact of the recent sharp drop in commodity prices on Latin America’s major economies will have important implications for their fiscal and external positions going forward. Several commodity exporters in the region will likely experience a significant and persistent drop in fiscal revenues, requiring some deliberate deficit reduction efforts. Regarding external positions, historical evidence suggests that the deterioration in trade balances will be relatively moderate and short lived. Unfortunately, external adjustment typically does not appear to be driven by a rise in noncommodity exports, but rather by acute import compression, especially in countries with more rigid exchange rate regimes and low export diversification.

International Monetary Fund. Western Hemisphere Dept.

Abstract

After peaking in 2010–11, real investment has decelerated in Latin America and the Caribbean (LAC), in line with developments in other emerging markets. Coming down from cyclical highs, however, investment ratios are still above historical averages in most countries in the region. This chapter examines the key factors determining the behavior of private investment. The analysis suggests that the sharp decline in commodity export prices is the main driver behind the investment slowdown in Latin America. Lower current cash flows and expected profitability, and increased corporate leverage at the firm level have also played a role, though to a more limited extent than elsewhere. Given the subdued outlook for many key drivers of corporate capital spending, a robust investment recovery in Latin America seems relatively unlikely, unless policymakers can make decisive progress in improving conditions for private investment.

International Monetary Fund. Western Hemisphere Dept.

Abstract

Economic diversification and complexity—relating to the range of products that a country produces and how sophisticated these products are—matter for long-term growth. Unfortunately, Latin America and the Caribbean (LAC) have not been able to benefit significantly from these levers so far. Economic diversification and complexity remain relatively low, and the dynamics over the last decade have not been encouraging. We also find that the benefits of diversification and complexity can be undermined by shortcomings in other areas (for example, macroeconomic instability), consistent with historical experiences in the region. Looking ahead, the key to improving longer-term growth prospects is to prioritize structural reforms and harness knowledge spillovers from greater openness, while preserving sound macroeconomic frameworks.

Mr. Amor Tahari, Mr. M. Nowak, Mr. Michael T. Hadjimichael, and Mr. Robert L. Sharer

Abstract

Over the past two decades, sub-Saharan Africa has lagged behind other regions in economic performance. The important overall indicators of performance, however, mask wide differences among countries. On the whole, countries that effectively implemented comprehensive adjustment and reform programs showed better results. Their experiences demonstrate that an expansion in private saving and investment is key to achieving gains in real per capita GDP. The four papers included in this publication provide a cross country analysis that assesses empirically the role of publlic policies in stimulating private saving and investment in the region in 1986-92 and describe the adjustment experiences of Ghana (1983-91), Senegal (1978-1993), and Uganda (1987-94).

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

The global crisis has affected the MEOEs mainly through the sharp fall in oil prices and the tightening of credit conditions. Despite the decline in oil revenues, most countries of the group are maintaining capital spending at a high level. This spending is providing an important stimulus to global demand, but will result in a turnaround in MEOEs’ external positions from a massive collective surplus of $400 billion last year to a deficit of $10 billion in 2009. With credit to the private sector declining and financial risks rising, the authorities have acted swiftly and forcefully to ease domestic liquidity conditions and support banking systems. In view of the downside risks to the outlook, especially of a prolonged global recession and/or deteriorating balance sheets in MEOE financial sectors, countries need to enhance oversight of the financial system and support economic activity while preserving fiscal sustainability.

Evangelos A. Calamitsis and Mr. Pierre Dhonte

Abstract

During the past two decades, sub-Saharan Africa has lagged behind other developing regions in economic performance. However, the important overall indicators of performance have masked wide differences among subgroups of countries in the region. On the whole, African countries that have effectively implemented comprehensive adjustment and reform programs have shown better results. The divergence in performance among the various country groups has primarily reflected differences in their policy response to the deterioration in the terms of trade, as well as in progress made toward promoting macroeconomic stability, improving external competitiveness, and alleviating structural and institutional impediments to private sector activity.

Michael T. Hadjimichael and Mr. Dhaneshwar Ghura

Abstract

The experience of sub-Saharan African countries in recent years has demonstrated that achieving gains in real per capita incomes requires more private saving and investment.1 Nonetheless, saving and investment ratios in sub-Saharan African countries are significantly lower than in other developing countries and still too low to support a sustainable expansion in output and employment. For example, the ratios to GDP of total saving and investment in sub-Saharan Africa during 1986–92 amounted to 11.8 percent and 18.6 percent, respectively, as compared with 24.5 percent and 25.7 percent for developing countries in general (IMF (1994)). World Bank estimates indicate that an investment to GDP ratio of about 25 percent is needed by sub-Saharan African countries to maintain a sustainable economic growth rate of about 6 percent. In addition, recent developments in the theory of endogenous growth have established positive long-run effects on growth stemming from increases in the investment ratio, and much of the recent empirical evidence in the growth literature has found strong, positive, significant, and robust effects on economic growth from increases in investment ratios.2 Thus, in the period ahead, sub-Saharan African countries will be challenged to raise their investment ratios to boost economic growth and to close the gaps in regional economic performance. However, given the limited foreign direct investment in sub-Saharan Africa and the growing demand for the limited international foreign assistance funds, more resources needed to finance investment in the region will have to come from domestic sources.3 Accordingly, public policies need to be directed at establishing an environment conducive to the development of the indigenous private sector; such policies will also be needed to attract foreign direct investment.

International Monetary Fund. Middle East and Central Asia Dept.

Abstract

With relatively limited links to global financial markets, the Middle Eastern Oil Importers (MEOIs) have generally escaped the ravages of the global financial crisis. As the global recession deepens, however, MEOIs face weaker prospects for exports, foreign direct investment (FDI), tourism, and remittances. Consequently, MEOI growth is slowing too, but with a lag and more moderately than in advanced economies, and financial sectors in MEOIs are becoming more vulnerable. Most governments are unable to respond with significant fiscal stimulus owing to the limited fiscal space available. As a result, unemployment and poverty could rise substantially—with adverse implications for social stability. Therefore, in low-income countries, an increase in donor financing will be necessary to maintain aggregate demand and enhance social safety nets.