1. Our Ugandan authorities appreciate the constructive engagement with staff and share the thrust of staff's assessment of economic developments and key policy priorities.
Introduction
Abstract
Growth in sub-Saharan Africa has recently shown signs of improvement, but is still short of levels needed to attain the Millennium Development Goals. Economists have placed increasing emphasis on understanding the policies that promote sustained jumps in medium-term growth, and the paper applies this approach to African countries. The evidence presented finds an important growth-supporting role for particular kinds of institutions and policies, but also highlights aspects of growth that are still not well understood. The paper includes policy guidance for ensuring that the poor benefit from growth.
This Selected Issues paper analyzes the underlying sources of growth in Uganda, suggesting that the contribution to growth from total factor productivity has been minor, while the high population growth poses a significant challenge to sustain a rapid improvement in living standards. The paper takes a closer look at the monetary transmission mechanisms in Uganda, aimed at assessing the appropriate choice of intermediate target and mix of liquidity sterilization instruments. It also focuses on the recent financial sector reforms undertaken by the government.
Abstract
Are improvements in growth in sub-Saharan Africa since the mid-1990s sustainable? What types of growth strategies contribute the most to reducing poverty? This paper examines these questions in four stages. First, it explores the factors contributing to this recent improvement in growth. To what extent is the growth recovery driven by favorable external conditions? Have improved policies played an important role? Has the improved growth performance been accompanied by improvements in investment, productivity growth, and basic institutions, suggesting a more durable foundation? How do these factors explain differences in performance across subgroups in the region? Which countries can be identified as the strongest performers? The analysis throughout considers correlations, since many of the factors considered are themselves strongly influenced by output growth, making it difficult to establish causal relationships.
Abstract
The stylized facts of growth during 1960–2003 are sobering. For the region as a whole, real GDP grew at an average rate of 3.7 percent a year, and real GDP per capita grew at 1.1 percent.4 Real per capita income is approximately the same as in the mid-1970s. Because of very weak overall growth, Africa’s real GDP per capita has steadily lost ground relative to both industrial and other developing country regions. While there have been periods of fast growth in many individual countries, only five countries (Botswana, Equatorial Guinea, The Gambia, Mauritius, and Swaziland) have registered an average growth rate of at least 5 percent. Equatorial Guinea is a special case of an oil boom beginning in the 1990s; only Botswana and Mauritius have consistently grown at rates exceeding the long-run mean for developing countries. Growth rates in Africa also tend to be more volatile than in other regions, particularly at short and medium horizons. Growth-accounting decompositions show that average total factor productivity (TFP) growth for sub-Saharan Africa has declined in every decade since 1970,5 which has been called the primary reason for sub-Saharan Africa’s slow growth.6
Abstract
Very large and sustained increases in growth rates are necessary if sub-Saharan Africa is to have a realistic prospect of halving income poverty by the year 2015. To meet the poverty Millennium Development Goals (MDGs), sub-Saharan Africa’s real GDP growth rates will have to double from a base scenario to about 7.5 percent.17 Although knowledge about what leads to sustainable, large accelerations of growth in sub-Saharan Africa is limited, it is instructive to look at some recent success stories within the framework of growth accelerations. A paper by Hausmann, Pritchett, and Rodrik (2004) (hereafter Hausmann, Pritchett, and Rodrik) has proposed that the traditional focus of empirical growth research on long-horizon or panel-data growth regressions can camouflage important medium-term patterns in a country’s growth. By looking at jumps in countries’ medium-term growth trends, they argue, one can gain insight into the sources of successful growth transitions. In addition, standard methods do not directly address a policymaker’s key question: how likely is it that a particular country will experience a growth acceleration that is sustained for a period of time?
Abstract
Some additional examination is warranted of selected policies that the growth acceleration analysis could not probe deeply. Although many countries’ fiscal policies have improved, they still face major challenges in maintaining low deficits, reforming public expenditure management to improve the productivity and efficiency of spending, and designing institutions that reduce the procyclicality of fiscal policy, particularly if they are resource intensive. Financial sector development has been identified as an important correlate of growth accelerations in the literature, but less is known about the link between financial development and growth in sub-Saharan Africa. The scope of the discussion below is limited and selective: it explores the consistency of sub-Saharan Africa data with some important predictions from the literature directly linking fiscal policy or financial development and growth. These areas, as well as institutions—which the growth acceleration analysis highlighted and recent literature suggests are fundamental for growth—are discussed.27 The coverage of policies is also selective: some of the most critical reforms now needed to improve sub-Saharan Africa growth prospects are microeconomic or related to governance—that is, improving the quality of public services, particularly in health and education; improving the private sector business climate; and expanding and upgrading the quality of infrastructure.