The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy.


The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy.

Inflation Targeting Assumes Growing Importance in Monetary Policymaking

In recent years, inflation targets have been increasingly adopted as the primary focus for the conduct of monetary policy, according to an analysis in the October 1996 edition of the World Economic Outlook. Countries that have adopted official inflation targets in the 1990s include Australia, Canada, Finland, New Zealand, Spain, Sweden, and the United Kingdom. By focusing on the ultimate goal of monetary policy—reasonable price stability, that is, inflation at rates low enough not to affect economic decisions—inflation targets may provide a more transparent framework for policy than alternative frameworks based on monetary targets or pegged exchange rates. Indeed, inflation targets have typically been adopted after unsuccessful experiences with either monetary targeting or pegged exchange rates, or both. Inflation targeting may not be the most appropriate monetary policy framework for all countries, however, according to the World Economic Outlook. It has been most useful in cases where policymakers have needed to establish a credible commitment to low-inflation policies. A number of countries that have been relatively successful at achieving and maintaining low inflation—including Germany, Japan, and the United States—have continued to eschew formal inflation targets.

Explicit inflation targets play two key roles in the effort to reduce and control inflation:

• By communicating to the public the objective that monetary policy seeks to accomplish, they serve as a coordination device in wage-and price-setting processes and in forming the public’s inflation expectations.

• They provide a transparent guide to the conduct of monetary policy, whose commitment and credibility can then be assessed on the basis of whether policy actions are taken to ensure that the targets are achieved.

Accordingly, in those countries that have adopted them, inflation targets have become a key nominal anchor. Usually, inflation targets have not been supplemented by explicit intermediate targets for other nominal variables, such as monetary aggregates, although in principle it would not be inconsistent to do so.

Once an explicit inflation target is adopted, the authorities need to specify the price index to be used in calculating the inflation rate, the target inflation rate or range, the horizon over which the target applies, and the situations under which the target may be modified or even disregarded. In practice, countries have set targets for the rate of inflation rather than the price level, which implies that overshooting the inflation rate target need not be followed by undershooting, as would be the case if the objective were absolute stability of the price level. A variety of theoretical and statistical arguments have been advanced in favor of targeting a low, but non-zero, inflation rate. Most inflation targets have been specified as inflation bands with widths of up to 3 percentage points. While a single target rate might most effectively serve as a focal point for inflation expectations, a relatively narrow band may be more credible in view of the authorities’ necessarily imperfect control over inflation. As to the appropriate price index, some countries target an inflation index that excludes particularly volatile items such as food and energy prices, indirect taxes and subsidies, and interest cost components; others directly target the broadly defined consumer price index.

The legal and institutional support for inflation targets differs across countries. In New Zealand, the targets were established as part of a thorough institutional reform, including a legislated goal of price stability and an independent and accountable central bank. In other cases, targets have been established by the central bank without an explicit commitment by the government to achieve them. In addition, accountability by the monetary authorities for their actions can vary considerably. For example, in the United Kingdom, although the Bank of England was given greater operational independence in determining the timing of monetary policy actions following the introduction of inflation targets in 1992, the Chancellor of the Exchequer (who is accountable to Parliament) retains control of monetary policy; but many other central banks are directly accountable to the legislature.

In practice, since monetary policy affects economic activity and inflation with long lags, and since knowledge of the monetary transmission mechanism is imperfect, policy must be forward looking and policymakers must rely on multiple indicators to evaluate the economy’s inflation outlook. These indicators include monetary aggregates, the yield curve, movements in asset prices, market-or survey-based expectations of inflation, forecasts of the output gap, indicators of the fiscal stance, and exchange rate forecasts. Based on their evaluation of the inflation outlook, the authorities can choose a time path for the monetary policy instruments that results in a conditional probability distribution of future inflation consistent with achieving the inflation target. Instead of setting policy instruments on the basis of point estimates of future inflation, a more fruitful procedure has been to assess the risks and uncertainties associated with the inflation outlook and to set policy instruments according to probable inflation outcomes.

Inflation Targeting: Some Theoretical Considerations

To achieve price stability, central banks in several industrial countries have geared their monetary policy toward ensuring that inflation stays within an agreed-upon target range. An IMF Working Paper by John H. Green of the IMF’s Monetary and Exchange Affairs Department assesses the theoretical effectiveness of inflation targeting in helping achieve greater price stability.

The major question guiding the working paper is: can inflation targeting in fact deliver long-run price stability, or does it suffer from the drawbacks associated with other kinds of discretionary policies that in theory can lead to an inflation bias? The study concludes that inflation targeting can deliver long-run price stability if either price stability is made the single policy objective or consistent targets for both inflation and output are set.

Who Has Adopted Targeting?

As a monetary policy framework, inflation targeting has been adopted in several industrial countries. New Zealand first announced an inflation target in 1990 as part of its economic reform and restructuring program, and Canada followed in early 1991. In the wake of the European exchange rate mechanism (E.R.M) crisis in September 1992, the United Kingdom announced an inflation target to replace the exchange rate anchor that had been in place for two years. Under similar circumstances, Sweden and Finland set up inflation targets during the same period. Australia and Spain have also announced inflation targets.

How Do Targets Work?

In an inflation-targeting regime, the government announces a target or, more typically, a target range for future inflation. A change in the current policy stance is indicated if projected inflation over a one- to two-year time horizon falls outside of the announced range. Operationally, then, inflation targeting can be viewed as a two-step process whereby the monetary authority must first make an inflation forecast to assess whether, under current policies, inflation is likely to remain within the announced target range. The second step is taken in the event future inflation is judged likely to move outside the target; in this instance, necessary policy measures are taken to help ensure that the projected inflation rate is kept within the target range.

Increased transparency can be an important part of inflation targeting. Measures to increase transparency—regular publication of central bank and treasury assessments of inflation and inflation prospects, for example—can be used to strengthen public support for a given inflation targeting strategy. It can also serve as a means of conveying, implicitly or explicitly, an output target.

How Are Targets Best Implemented?

Inflation targeting alone may not resolve the underlying potential problem of inflationary bias that arises when a central bank can trade off inflation for higher output in the short run. The problem can be overcome, however, if one of two alternative courses of action is followed:

• Price stability is made to be the single objective of policy. By focusing solely on price stability, the monetary authority commits to refrain from surprise inflation—that is, it will not lower interest rates to stimulate the economy in a way that could trigger inflation. This approach, however, may require certain institutional arrangements that hold the monetary authority to the single inflation objective.

• A dual policy objective is adopted. By announcing an output objective consistent with price stability over the long run—attempting to keep output growth in line with the economy’s potential but not above it—the monetary authority can enhance its credibility. Transparency measures, such as those adopted in the inflation-targeting countries, implicitly contribute to credibility in this way.

Copies of Working Paper 96/65 Inflation Targeting: Theory and Policy Implications, by John H. Green, are available for $7.00 from Publication Services, Box XS600, International Monetary Fund, Washington, DC 20431 U.S.A. Telephone: (202) 623-7430; fax: (202) 623-7201; Internet:

Since monetary policy decision making requires assessing current and future inflationary trends and comparing these trends with the announced inflation target, the process leaves room for discretion, the use of which will affect policy credibility. These considerations point to the importance of transparency and openness in the conduct of policy in relation to the operating framework. Thus, some aspects of the monetary policy process in the United Kingdom since 1992, such as the Bank of England’s Inflation Report with its inflation forecast and the publication of the minutes of meetings between the Governor and the Chancellor, have increased both the transparency of policymaking and the accountability of the treasury and the central bank to the public.

In most countries, performance with inflation targets thus far has been satisfactory in some important respects. Despite the less-than-full credibility of the targets, which may be inferred from discrepancies between measures of the public’s inflation expectations and the targets, inflation objectives have in most cases been achieved or surpassed. While this may seem impressive, a more complete judgment awaits the passage of at least a full business cycle. In most countries, the targets were introduced in periods of considerable economic slack, making it difficult to judge their performance since countries without explicit targets have also experienced low inflation in recent years. The advent of greater inflationary pressures in the future may show more decisively the effectiveness of inflation targeting relative to other monetary policy frameworks. These pressures, if and when they arise, may create divisions about the goals of monetary policy, which in turn may constitute a substantial test of the credibility and functioning of inflation targets. Finally, formal inflation targets are only one aspect of macroeconomic policy. As such they are likely to function best when fiscal policy and wage behavior are compatible with the inflation targets, and when the institutional arrangements concerning the status and policies of the central bank are supportive.

Getting the Most Out of the EU’s Mediterranean Strategy Costs and Benefits of the MEDA Strategy

The countries of the southern basin of the Mediterranean region have a long history of political, social, and economic relations with Europe. Formal institutional links between Europe (both the European Community and its successor, the European Union (EU)) and the Mediterranean date back more than thirty years. Over the years, the EU has sought to broaden its involvement in the region—moving from narrowly based trade agreements to a more comprehensive region-wide strategy. In 1995, following a three-year evaluation of its global policy in the Mediterranean region, the EU unveiled its new Mediterranean strategy (“MEDA strategy”) in the Barcelona Declaration.

The new strategy is aimed at engendering political stability in the southern Mediterranean region, encouraging balanced and sustainable growth, and dealing with such interregional issues as environmental protection. Intermediate objectives, which are embodied in bilateral agreements between the EU and individual Mediterranean countries, include creating a free-trade area, increasing investment flows, fostering intraregional economic links, establishing mechanisms for political and economic dialogue, and providing performance-linked financial support.

In the past year, the EU has signed bilateral agreements with Israel, Morocco, and Tunisia; negotiations are under way with a number of other countries. What benefits can accrue to the Mediterranean countries and how they can get the most out of the new strategy were the subject of a recent IMF Economic Forum, moderated by Paul Chabrier, Director of the IMF’s Middle Eastern Department. Participants included Oleh Havrylyshyn, Assistant Director in the IMF’s Policy Development and Review Department; Bernard Hoekman, Senior Economist with the World Bank’s Europe and Central Asia/Middle East and North Africa Regions; and Hassan Abouyoub, Minister of Agriculture for Morocco and one of the chief negotiators of the Association Agreement with the EU (AAEU) for Morocco under the MEDA strategy.

The main features of the bilateral agreements are:

• progressive elimination over 12 years of all tariffs on industrial goods;

• gradual but limited trade liberalization for agricultural products, with no substantive discussion of the issue until 2000;

Photo Credits: Pages 361 and 369, Denio Zara and Padraic Hughes for the IMF; page 376, World Bank.

• steps to liberalize services; and

• adoption of a wide range of EU regulations in such areas as competition policy and intellectual property rights.

The medium-term costs of the AAEU agreements cannot be ignored, said Chabrier. First, the tariff reductions will entail substantial losses of fiscal revenue for the Mediterranean countries, requiring ambitious fiscal and tax reform. Also, the benefits from the progressive tariff reduction will be limited, since most of the southern Mediterranean countries already have free access to the EU. Second, preferential trade agreements—a defining characteristic of customs unions—can lead to trade diversion (that is, as lower-cost imports from outside the union are replaced by high-cost imports from within the union, trade diversion shifts production from more efficient producers outside the union to less efficient producers inside it). Restructuring or relocating some productive activities will entail adjustment costs for both labor and capital—particularly in countries with already high unemployment.

The agreements go well beyond establishing a free-trade zone on a 12-year schedule, however. Thus, in signing the agreements, the Mediterranean countries commit themselves to a comprehensive liberalization of their trade systems and a restructuring of their economies supported by performance-related aid from the EU.

Minimizing the Costs, Maximizing the Benefits

At first sight, the AAEU agreements appear to be distinctly one-sided—with European exporters benefiting from the progressive lowering of Mediterranean country trade barriers. So, why, asked Oleh Havrylyshyn, are the Mediterranean countries willing to sign on? Much of the answer, he said, could be found in recent regional economic developments. Since the end of the 1980s, almost all of the southern Mediterranean economies have experienced stagnant growth, following a period of dynamic development during the 1970s and 1980s. These countries view the AAEU agreements as an engine for growth that could boost their stalled economies and help integrate them into the world economy through more direct integration with Europe. In Havrylyshyn’s view, their “bold and courageous” move reflects faith in the opportunities that liberalization offers for future gains, efficiency and productivity improvements, and growth.

How can the benefits of the agreements be maximized, and what are the appropriate strategy choices? Countries must recognize that major benefits will be realized only in the medium and long run, assuming the proper foundations are laid. Havrylyshyn cited two closely related long- run benefits of liberalization:

Efficiency and productivity gains. The AAEU agreements do not, by themselves, create export opportunities for the southern Mediterranean countries. Rather, by opening-up these economies, they expose domestic industries to competition from foreign imports. Competitive pressure will trigger a reallocation of resources to the most productive sectors and raise the productivity and efficiency of local enterprises.

Integration into Europe. The vehicle for achieving the first benefit is the prospect for integration with Europe, which should attract much-needed—indeed, essential—foreign and domestic investment in the productive capacity of the southern Mediterranean countries.

Investment is critical, but it may be delayed or insufficient because of the bilateral nature of the AAEU agreements, which could provoke the so-called hub-and-spoke effect. Although each country has a free trade agreement with the EU, each also maintains high intraregional trade barriers. Foreign investors who might otherwise have invested in a single country because of the access it offered them to its domestic markets would have more of an incentive to invest in the “hub” (the EU), which offers them access to all the Mediterranean countries (the “spokes”).

Another potential impediment to investment is the risk of failing to attract investors in the early stages of adjustment. Since the costs of adjustment come first and the benefits later, investors must be confident that the benefits will indeed materialize.

Among the most serious short-run costs will be the immediate impact of European exporters competing with less efficient southern Mediterranean manufacturers—and the adjustments needed in the domestic industry.

A second important short-run cost is lower fiscal revenues occasioned by graduated tariff reductions. For many Mediterranean countries this loss of revenue poses a serious problem. Nevertheless, Havrylyshyn insisted that the adjustment was not only essential but “doable.” In many of the countries in the region, tax collection relative to the existing potential tax base is low, and there is considerable room for improvement in tax systems. In addition, the graduated tariff reduction schedule built into the AAEU agreements provides ample time for implementing improvements in the tax system in parallel with the tariff reductions.

Strategic Options. The AAEU agreements permit signatory countries to pursue a range of strategies. A minimalist approach involves little beyond the free trade agreement. This, option, according to Havrylyshyn, would be the “worst of all possible worlds,” yielding only short-term adjustment costs and few, if any, benefits. Much more beneficial, he said, were strategies encompassing comprehensive structural reform. These would ensure efficiency improvements and attract investor interest.

A final option would be for the Mediterranean countries to move beyond free trade with Europe and domestic economic structural reform toward a broader opening-up of the economy multilaterally. Although this final option could create political difficulties and incur some additional adjustment costs, Havrylyshyn concluded, the additional benefits would be substantial and well worth the investment.

Free Trade Versus Deeper Integration Agreements

The answer to the question of why the Mediterranean countries have subscribed to the MEDA strategy, said Bernard Hoekman, is that it will foster economic growth. But will the agreements create the necessary environment for growth? According to the conventional literature on preferential trade agreements, the extent of the benefits depends on what happens to a country’s terms of trade and the volume of world trade. Under the North American Free Trade Agreement (NAFTA), Mexico “locked in” the trade reforms it had already undertaken unilaterally by signing a free trade agreement with larger countries. NAFTA, however, contains no provisions for further liberalization.

If the AAEU were merely a preferential trade agreement, said Hoekman, the gains to the Mediterranean countries would likely be minimal, since most already have duty-free access to the EU. The AAEU, however, is a “deeper integration agreement.” A country locked into such an agreement—with a built-in graduated reduction in tariffs and the ultimate objective of integration in to the world economy—gains credibility and generates the confidence needed to attract investment. “Content matters” in deeper integration agreements, he said; the more the agreement covers, the easier it is for governments to pursue the reforms required to achieve the objectives embodied in the agreement.

Successful application of the MEDA strategy, which Hoekman called a “daring experiment,” will depend on how the Mediterranean countries approach adjustment and how the EU responds. Changing investor expectations—and dissipating the hub-and-spoke effect—will also depend on how successful the countries are in breaking down intraregional tariff barriers and implementing complementary reforms. The MEDA strategy, he said, sets in motion a dynamic leading to more liberalization. Properly harnessed, this process will provide the fuel needed to achieve the ultimate goal of growth and integration.

Morocco’s Experience

Although mindful of the costs involved, Hassan Abouyoub said the Moroccan authorities were convinced that the AAEU offered superior opportunities for growth, development, and integration. Earlier trade and association agreements with Europe lacked clearly defined objectives or time frames and remained largely bilateral. The new agreement affords credibility and predictability to Morocco’s trade relations with Europe. Although the EU’s Mediterranean strategy remains based on bilateral agreements, there is a renewed emphasis on a multilateral framework. This emphasis on intraregional cooperation and liberalization will strengthen the hand of the Mediterranean countries against European protectionist interests and help them gain a stronger competitive foothold in the markets.

Three questions need to be addressed in determining the success of the agreements, said Abouyoub. What policy will Morocco (and other signatories) pursue to derive full advantage of the agreements? To what extent can Mediterranean countries open their markets to each other? How will Europe fulfill its commitments on financing and agricultural exports.

Policy Program. Maintaining a sound macroeconomic policy is critical, said Abouyoub, and must include:

• emphasis on sound fiscal policy, including strict supervision of the level and quality of public expenditure;

• reform of the public sector, including restructuring monopolies in water supply and power generation, to attract foreign investment;

• improvement of the investment environment through legislative and regulatory reforms;

• re-examination of the trade-off between pricing policy and food subsidies in the context of social policy versus trade policy;

• improvement of the educational system; and

• reform of agricultural policy, including husbanding water resources and employing integrated regional approaches.

IMF Announces Appointment of Bosnia and Herzegovina Central Bank Governor

On October 29, IMF management, in consultation with the Presidency of Bosnia and Herzegovina, announced the appointment of Serge Robert as Governor of the new Central Bank of Bosnia and Herzegovina. In welcoming the appointment, the Presidency also announced the nomination of the three other members of the Governing Board: Kasim Omitevic, the current Governor of the National Bank of Bosnia and Herzegovina; Jure Pelivan, a former Governor of the National Bank of Bosnia and Herzegovina; and Manojlo Coric, Governor of the present National Bank of Republika Srpska.

Under the new Constitution of Bosnia and Herzegovina, enacted as part of the Dayton/Paris peace treaty, a new Central Bank is to be established as the sole authority for monetary policy and the issuing of domestic currency. This institution will operate for at least its first six years as a currency board, issuing a new domestic currency in exchange for purchases of foreign exchange. The Constitution provides for the Governor for the first six years to be named by IMF management, after consultation with the Presidency. The Governor is not to be a citizen of Bosnia and Herzegovina or any neighboring country.

Robert, a native of France, has served for the past eight months as Senior Advisor to the Governor of the Central Bank of Haiti. Previously, he spent 20 years with the Banque de France, holding senior management positions, and 20 years as a senior executive with European commercial banks.

Intraregional Cooperation. The lack of intraregional cooperation could stall the beneficial effects of the AAEU agreements, said Abouyoub, by provoking social tensions and economic distortions, such as trade diversion and the hub-and-spoke effect. Eliminating barriers between and among countries in the region would improve the welfare of all the countries, but differing levels of adjustment and development make collective negotiations between the EU and the region difficult. Still lacking, Abouyoub said, is a political consensus on fiscal and trade policy.

EU Commitments. Morocco must look to parallel concessions from Europe, as well. In particular, the MEDA strategy calls for the EU to provide performance-linked financial support. But as Abouyoub noted, there is still heavy resistance within the EU to allocating sufficient money to fuel and finance adjustment in the southern Mediterranean countries.

Also of continuing concern, said Abouyoub, is how Europe will fulfill its commitments to free up access to its agricultural markets, and how the Mediterranean countries will be able to exploit their comparative advantage against competitors in the EU.

The EU’s new Mediterranean strategy represents a clear improvement over earlier initiatives. As Paul Chabrier concluded, the agreements provide opportunities for deeper integration in the world economy through intermediate objectives that lock in reforms and enhance credibility and attract investment. But important changes will have to be made. An appropriate macroeconomic environment and an enabling regulatory framework will be needed. This must include broader trade liberalization conducive to higher private-sector investment and further integration into the global economy.

Sara Kane

Senior Editor, IMF Survey

U.S. Income Distribution Influenced by Technological Change, Other Factors

Since the mid-1970s, U.S. income distribution has widened and an increased proportion of U.S. households have fallen below the poverty line. A new IMF Working Paper—Income Distribution and Macroeconomic Performance, by Jeffrey Cole and Christopher Towe—finds that income distribution is sensitive to economic downturns but is not linked to other macroeconomic developments, such as income growth or increased imports. Other factors explaining the rise in income inequality include growing investment in high technology, the decline in the real minimum wage, and demographic and sociological developments.

Trends in Income Distribution

Between 1950 and 1979, real median incomes for U.S. families increased by more than 200 percent. Between 1979 and 1994, however, real median incomes fell by 1 percent, and trends in income distribution reflected growing inequality. The “Gini ratio,” which measures the extent to which income distribution deviates from perfect equality (with perfect equality equal to 0 and perfect inequality equal to 1), had held relatively steady at about 0.36 between 1947 and 1976. Since that time, the Gini coefficient has risen in the United States, reaching 0.43 in 1994. This upward trend, Cole and Towe find, derives largely from a rise in the average real incomes of the top quintile (the one-fifth of the population with the highest incomes) and a decline in the average real income of the bottom quintile. Between 1976 and 1993, the real mean income of households in the top quintile rose 35 percent, while that of the bottom quintile dropped 12 percent. The top quintile’s share of total income climbed to 47 percent in 1993—up from 43 percent in 1947, while the bottom quintile’s share over the same period dipped to 4 percent from 5 percent. Paralleling these developments, the share of households below the poverty line increased to 12 percent in 1993 from a historical low of 9 percent in the 1970s.

In contrast, for most other industrial countries, the measures of income inequality have remained broadly stable over the past several decades. An exception is the United Kingdom, which recorded a sharp rise in income inequality in the 1980s.

Variables Affecting Income Distribution

A number of studies have attempted to determine the causes of the apparent increase in income inequality in the United States. A prevalent explanation, say Cole and Towe, is the widening wage differential for unskilled and skilled labor. This differential rose sharply through the 1980s, reaching 53 percent in 1990 from 38 percent in 1980. The reasons offered for this growing divergence include the decline of the manufacturing sector relative to the services sector, the impact of technological change on the demand for skilled labor, and the competition offered by increased imports from low-wage countries. Cole and Towe cite IMF research that suggests that the rising wage gap stems largely from a decline in the demand for relatively high-wage low-skilled labor in the durable goods manufacturing sector and the effect of technological change (proxied by investment in computers). These factors appear to have been only partially offset by a rise in the supply of skilled (that is, college-educated) workers.

While IMF research has found no link between imports and wage differentials, it has found a positive correlation between wage differentials and an increase in the real effective exchange rate, suggesting that a loss of competitiveness adversely affects the relative wages of less-skilled U.S. workers. There is also evidence that rising rates of female participation in the labor force contributed to widened wage differentials by increasing the relative supply of less-skilled workers.


U.S. Income Distribution Trends

Citation: IMF Survey 25, 001; 10.5089/9781451937442.023.A022

1The Gini ratio—which ranges between 0 and 1—measures the degree of inequality. An increase in the ratio indicates greater Inequality.Data: U.S. Bureau of the Census

Cole and Towe enumerate several other factors meriting consideration in evaluating the increased skewness of the income distribution. These include:

Lifetime Earnings Profiles. By 1994, the median income of householders aged 45–54 was 60 percent higher than the 25-34 age group—a sharp jump from the 18 percent difference recorded between the two groups in 1964. This dramatic steepening of the age-income profile during a period when large demographic shifts also were taking place may offer a more benign explanation for the increased skewness of U.S. income distribution.

Distribution of Wealth. The distribution of wealth is often cited as a more meaningful measure of inequality. Recent research suggests that the wealth distribution also became more skewed during the 1980s, partly owing to the effect of an increase in stock prices relative to housing values, and low inflation. However, there is also evidence to suggest that the Gini ratio for wealth rose by less than that for income.

Distributional Mobility. Is there evidence of more movement of individuals through income quintiles? The research is inconclusive, according to Cole and Towe. At least one study suggests that a substantial portion of those in the lowest quintile in 1975 did move to somewhat higher quintiles by 1991. This study finds that the most rapid rises in income are correlated with educational attainment but notes that even those with secondary education or less achieved real income gains through the period. Other studies, however, indicate little change in mobility patterns.

Distribution of Consumption. Various researchers posit that income-based measures of inequality distort measures of inequality by failing to take into account, among other things, changes in household size or the effects of taxes and transfer programs. A number of studies have favored using the distribution of consumption as a proxy for relative well-being. Consumption patterns typically reflect considerably less skewing than income-based measures. One study found that average household income in the top quintile was 13 times higher than the average income in the bottom quintile, but that consumption per person in the top quintile was only twice that of the bottom quintile. Other consumption-based studies also reflect less dramatic patterns of inequality, but nonetheless provide evidence of a trend toward greater inequality.

• Sociological Factors. Only dual-income households have recorded consistent relative income gains from the 1950s to the 1990s. The median income of one-income married couples and single-parent households as a share of overall median income reached an historic low in 1993, while the share of households headed by single females—who tend to have lower incomes—doubled from 1950 to 1993.

Empirical Evidence

Cole and Towe use empirical data to gauge the relative impact of macro- economic and other factors on income distribution. They find that the unemployment rate is a dominant cyclical predictor of changes in the overall index of income distribution. Increases in the unemployment rate lower the shares of the bottom three quintiles and increase the shares of the top two. But noncyclical macroeconomic factors also appear to play a prominent role. According to Cole and Towe, there is a strong correlation between the decline in the real minimum wage and increased income inequality. The aging of the baby-boom generation—represented by the growing proportion of the population aged 35 and above—and the steepening of the age- earnings profile also appear to have contributed to a widening of the income distribution. The decline in the child dependency ratio—a proxy for the average number of children per household—also seems to help explain the rise in income inequality, owing possibly to a negative correlation between family size and income.

The expanding proportion of female-headed households does not, the authors find, appear correlated with the increase in the overall Gini ratio, though it partly explains relative improvements in the fourth quintile, possibly at the expense of the second- lowest quintile.

The authors’ results support the argument that technological change has played an important role in widening income inequality. Increased investment in computers is positively correlated with the rise in income inequality, accounting for well over half the rise in the Gini coefficient over the past two decades, by raising the share of the top quintile at the expense of the other quintiles. A range of other macroeconomic variables—including inflation, real growth, interest rates, the share of nonwage to wage income, and import penetration—do not appear to explain income distribution trends during the past two decades.

These results must still be interpreted with caution, according to Cole and Towe, who warn in particular about drawing causal relationships from the correlations. Conclusive findings must await more comprehensive studies, perhaps drawing upon household surveys rather than aggregate data.

Income Distribution and Macroeconomic Performance, by Jeffrey Cole and Christopher Towe, is No. 96/97 in the IMF’s Working Paper series. Copies are available for $7.00 from Publication Services, Box XS600, IMF, Washington, DC 20431 U.S.A. Telephone: (202) 623-7430; Fax: (202) 623-7201; Internet:

Gender Bias Targeted for Reform in Many National Tax Systems

Social attitudes about the role of men and women have an important influence on how tax systems are devised, as reflected in the presence of gender bias in many national tax systems. Although gender bias may show up in any area of taxation, it is most commonly found in the personal income tax. In recent years, several countries—both developing and industrial—have launched efforts to reform their tax codes. But, as Janet Stotsky notes in Gender Bias in Tax Systems—a recently published IMF Working Paper—explicit gender bias remains pervasive, particularly in the tax systems of developing countries.

Identifying Gender Bias

Tax liabilities associated with individual income or wealth are more likely to give rise to gender bias than the income of a legal entity or the sale and purchase of goods and services, according to the IMF study. Gender bias may also be present in the link between tax payments and receipt of benefits for social insurance programs.

Recent Use of IMF Credit

(million SDRs)

article image
Note: EFF = extended Fund facility.CCFF = compensatory and contingency financing facility.STF = systemic transformation facility.SAF = structural adjustment facility.ESAF = enhanced structural adjustment facility.Figures may not add to totals shown owing to rounding.Data: IMF Treasurer’s Department

Gender bias may be either explicit or implicit. Explicit bias depends largely on the language in the specific provisions of the tax code and regulations. Explicit gender discrimination, which is intentional and relatively easy to identify, is most typically found in the personal income tax, which applies to individual or family units, such as married couples or entire families, and therefore lends itself more readily to differential treatment of individuals according to gender.

Implicit bias arises from provisions of the law and regulations that, because of social arrangements and economic behavior, tend to have different implications for men and women. For instance, increasing marginal tax rates may discourage secondary workers in a household—often women—from seeking employment. Implicit bias, which may be either intentional or inadvertent, is more difficult to identify than explicit bias, since it depends largely on value judgments about desirable social and economic behavior, which can vary considerably from one society and time period to another.

Implicit gender discrimination may also be present in the personal income tax, since it directly affects labor supply. Commodity taxes, trade taxes, and corporate income taxes may also lead to implicit gender bias through changes in household consumption and income or patterns of industrial development.

Bias in Personal Income Tax

Personal income taxes may be divided into two types: schedular, under which a liability is determined according to each source of income; and global, under which income is aggregated and one schedule of tax rate applies to it. Schedular income taxes are common in developing countries, particularly where the tax administration capacities are not well developed. Global income taxes are more common in industrial countries, although more developing countries have been adopting them.

There are two types of global income taxes: individual filing and joint filing. Under an individual filing system, married individuals file a separate return based on their own labor earnings; nonlabor earnings and exemptions or deductions are allocated as determined by law. Gender bias can take many forms when the individual is the filing unit, including:

• allocation of nonlabor income based on the common law tradition that all income earned by a married couple is assumed to be the property of the husband;

• allocation of family business income to the husband, regardless of the role of the spouses in the business;

• tax preferences available to only one spouse; for instance, a married man who supports the household is granted an allowance, but a married woman is not; and

• bias in the rate structure; for example, levying different rates on men and women, applying a higher rate to married women.

Although less prevalent when the taxpaying unit is the couple, gender bias is also present under a joint filing system. For example, in some countries, a joint filing must be submitted in the name of the husband, so that a wife has no separate existence as a taxpayer.

Bias in Developing Countries

Gender discrimination is present in the tax systems of many developing countries. The most common form, according to the IMF study, is to attribute the income of a married woman to her husband and to levy the tax in the husband’s name for any nonschedular income taxes.

Some developing countries have explicit provisions in the income tax code that distinguish men from women to accommodate typical social arrangements or to encourage certain social behavior. Whether viewed as discriminatory or simply as a reflection of social norms, these provisions tend to discriminate against women. For example, several countries influenced by the Islamic religion have provisions for multiple wives. Pakistan, which allows a higher basic exemption for a working woman than a man, is one of only a few developing countries explicitly discriminating in favor of women.

Reform Efforts

Only recently has the field of public finance acknowledged the importance of gender bias in public policies. Many nations have tried to eliminate gender bias, particularly in western Europe; and some developing countries are also instituting reforms in their tax systems, although few have achieved complete gender neutrality. Variation in cultural norms, the IMF study concludes, will continue to generate differing views about what constitutes discrimination and the need for change.

Gender Bias in Tax Systems, by Janet G. Stotsky, is No. 96/99 in the IMF’s Working Paper series. Copies are available for $7.00 from Publication Services, Box XS600, IMF, Washington, DC 20431 U.S.A. Telephone: (202) 623-7430; fax: (202) 623-7201; Internet:

Stand-By, EFF, SAF, and ESAF Arrangements As of September 30

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Note: EFF = extended Fund facilitySAF = structural adjustment facility.ESAF = enhanced structural adjustment facility.Figures may not add to totals owing to roundingData: IMF Treasurer’s Department

From the Executive Board

Haiti: ESAF

The IMF approved a three-year credit for Haiti under the enhanced structural adjustment facility (ESAF) equivalent to SDR 91.1 million (about $131 million) to support the government’s economic reform program for 1996-99. The first annual loan, equivalent to SDR 30.4 million (about $44 million), will be disbursed in two equal semiannual installments, the first of which will be available on November 5, 1996.

Haiti has suffered more than a decade of economic and social decline brought on by inappropriate economic policies and internal strife. The situation was aggravated following a military coup in 1991 and the subsequent embargoes imposed on most trade and financial transactions. A major collapse of the economy ensued and living standards declined significantly, particularly of the most vulnerable groups. Following the return to constitutional rule in October 1994, the government of Haiti put into effect an Emergency Economic Recovery Plan (EERP), which sought to achieve rapid macroeconomic stabilization, restore public administration, and attend to the most pressing needs. Economic performance improved significantly under the EERP: real GDP grew by 4.5 percent in 1994/95; the rate of consumer price increase declined to 30 percent on average; and the international value of the national currency, the gourde, stabilized. Nevertheless, despite a stronger-than-projected revenue performance, the government deficit was higher than contemplated, and the external current account deficit widened sharply to 19 percent of GDP, being financed by official assistance and private capital inflows.

Selected IMF Rates

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The SDR interest rate, and the rate of remuneration, are equal to a weighted average of interest rates on specified short-term domestic obligations in the money markets of the live countries whose currencies constitute the SDR valuation basket (the U.S. dollar, weighted 39 percent; deutsche mark, 21 percent; Japanese yen, 18 percent; French franc, 11 percent; and U.K. pound, 11 percent). The rate of remuneration is the rate of return on members” remunerated reserve tranche positions. The rate of charge, a proportion (currently 109.4 percent) of the SDR interest rate, is the cost of using the IMF’s financial resources. All three rates are computed each Friday for the following week. The basic rates of remuneration and charge are further adjusted to reflect burden-sharing arrangements. For the latest rates, call (202) 623-7171.

Data: IMF Treasurer’s Department

Haiti: Selected Economic Indicators

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Preliminary estimates,

Program projections.

Data: Haitian authorities and IMF staff estimates and projections

Medium-Term Strategy for 1996/97-1998/99 and Program for 1996/97

The macroeconomic objectives of the government’s program for the period through 1998/99 are to achieve an annual economic growth rate of 4–5 percent; reduce inflation to low single-digit levels; and strengthen the balance of payments and increase international reserves to the equivalent of 3.2 months of imports of goods and services by the end of the period, from 2.1 months in 1995/96.

Within this medium-term strategy, the program for 1996/97, supported by the first annual ESAF loan, aims at achieving a real GDP growth rate of 4.5 percent; reducing the rate of inflation to less than 10 percent from 20 percent in 1995/96; and holding the external current account deficit to around 15 percent of GDP, while increasing net international reserves to the equivalent of 2.7 months of imports, from just over 2 months.

To achieve these objectives, the program calls for broadening the tax base and streamlining the tax system, reducing exemptions from taxes and customs duties, improving tax administration, and strengthening tax enforcement. On the expenditure side, measures have been taken to reduce current budgetary outlays, and new procedures have been introduced to strengthen control over spending from the discretionary ministerial accounts. Together with the strengthening of the public sector’s savings performance, an increase in external support is projected that will help finance a notable rise in public investment. Monetary and credit policies will be geared toward the inflation and balance of payments objectives of the program.

Structural Reforms

Structural reforms will be accelerated under the program. In addition to the tax reforms, the reform effort will focus on public administration, including the introduction of a modern system of budgeting, expenditure control, accounting, and auditing; the decentralization of government functions and reinforcement of local administrations; and a civil service reform aimed at strengthening the caliber of the civil service. The major public enterprises and the state-owned banks will be restructured, while a national institute for agricultural reform, created in 1995, will formulate and help implement a comprehensive land reform over the next several years.

Addressing Social Costs

Given that Haiti is the poorest country in the Western Hemisphere, spending in the social sectors will increase. However, because of budget constraints, the authorities will continue to seek assistance from humanitarian organizations and external aid agencies. To prioritize the needs in these areas, the World Bank is conducting a poverty assessment, and a public expenditure review will be undertaken in early 1996/97 to help ensure the efficient use of public resources.

The Challenge Ahead

The government’s limited administrative capacity to carry out its reform agenda poses serious challenges and risks. Strict implementation and close monitoring of the program will be crucial and will be supported by a program to strengthen public sector management through civil service reform, technical assistance, and recruitment of qualified personnel. The success of Haiti’s program also requires the timely disbursement of external assistance.

Haiti joined the IMF on September 8, 1953. Its quota is SDR 60.7 million (about $87 million). Its outstanding use of IMF credit currency totals SDR 17.3 million (about $25 million).

Press Release No. 96/53, October 18

Madagascar: Article VIII

The government of Madagascar has notified the IMF that it has accepted the obligations of Article VIII, Sections 2,3, and 4, of the IMF Articles of Agreement, with effect from September 18, 1996. IMF members accepting the obligations of Article VIII undertake to refrain from imposing restrictions on the making of payments and transfers for current international transactions or from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval. A total of 133 countries have now assumed Article VIII status.

Two of the purposes of the IMF, as stated in its Articles of Agreement, are to facilitate the expansion and balanced growth of international trade and thereby to contribute to the promotion and maintenance of high levels of employment and real income, and to assist in the establishment of a multilateral system of payments in respect of current transactions between IMF members, In seeking to achieve these objectives, the IMF exercises firm surveillance over the exchange rate policies of its members and oversees the elimination of exchange restrictions that hamper the growth of world trade.

By accepting the obligations of Article VIII, Madagascar gives confidence to the international community that it will pursue sound economic policies that will obviate the need to use restrictions on the making of payments and transfers for current international transactions, and thereby contribute to a multilateral payments system free of restrictions.

Madagascar joined the IMF on September 25, 19fi3. Its quota is SDR 90.4 million (about $131 million).

Press Release No. 96/54, November 1

Ghana, Senegal, and Uganda Adopt Bold Reforms

For the past decade, sub-Saharan Africa has been struggling to improve its economic performance. A new Occasional Paper by the IMF’s African Department, Adjustment for Growth: The African Experience, looks at the experiences of Ghana, Senegal, and Uganda, and concludes that implementation of far- reaching adjustment and reform programs can boost economic performance. The main requirement for success is an appropriate mix of comprehensive adjustment and reforms that increases private saving and investment. To achieve this end, all three countries—and indeed all African countries—need to implement sustained and consistent policies to keep inflation low, step up fiscal consolidation, and promote financial reform.

Four themes dominate the IMF study:

Saving and Investment. The adjustment experience in sub-Saharan Africa underlines the importance of expanding private saving and investment as a prerequisite for growth. For example, the ratios of total saving and investment to GDP in sub-Saharan Africa during 1986–92 amounted to 11.8 percent and 18.6 percent, respectively, compared with 24.5 percent and 25.7 percent for developing countries generally. An investment-to-GDP ratio of about 25 percent is needed by sub-Saharan African countries to maintain a sustainable annual growth rate of about 6 percent.

Tight Financial Resources. Given growing demands for limited foreign assistance funds, African countries will need to develop their domestic financial resources and attract more foreign investment.

National Differences. While sub- Saharan African countries have many points in common, there are significant differences among them. In particular, some have made sustained adjustment efforts over a period of time and some have not been able to do so, owing to civil strife or other reasons. While the countries in the first group are already reaping the fruits of their efforts, they will need to continue to pursue sound policies—adapted to the specific contingencies facing each country.

Policies Matter. In many African countries, the expansion of private investment has traditionally been impeded by such political factors as structural and institutional constraints and governmental intervention in the setting of prices, wages, and exchange rates. While public policies are not the only determinant of private saving and investment in Africa, the recent success of stabilization and reform programs in Ghana, Senegal, and Uganda confirms the importance of policies explicitly designed to foster an environment of low inflation, reduced economic uncertainty, higher private saving and investment, and a stronger human capital base.

The experiences of Ghana, Senegal, and Uganda also demonstrate that effective implementation of medium- term adjustment and reform programs can generate positive economic results rather quickly. The divergence in performance among various groups of sub-Saharan African countries reflects differences in their policy responses to deteriorating terms of trade and disappointing progress in fostering macro-economic stability, improving external competitiveness, and alleviating structural and institutional impediments to private sector activity.

Notwithstanding their differences, the IMF study highlights important commonalities uniting the three African countries under review. In general, each has suffered from a legacy of governmental intervention in the economy, low savings rates, lagging productivity, and marked vulnerability to external shocks. More narrowly, the three case studies highlight the costs associated with changing and uncertain economic policies.

Ghana (1983-91)

At independence in 1957, Ghana was the world’s largest cocoa producer. It enjoyed the highest per capita income in sub-Saharan Africa, with external reserves equivalent to three years of imports. Over the next two decades, however, economic performance weakened in response to interventionist policies, including controls on foreign exchange, prices, and credit, and quantitative restrictions on imports. These policy choices in turn triggered large public sector deficits, surging inflation, and a negative balance of payments position. Ghana’s economic difficulties were further exacerbated by a severe drought in 1983 and falling cocoa prices. By 1982–83, Ghana’s economy had virtually collapsed.

In the aftermath of these shocks, Ghana launched an ambitious economic recovery program in 1983. Key elements of the reform strategy included a realignment of relative prices to encourage more productive activity, the promotion of exports, and strengthened economic incentives; a progressive shift away from direct controls and intervention and toward greater reliance on market mechanisms; early restoration of fiscal discipline; measures to increase public saving and reduced recourse to bank financing of the government; rehabilitation of the economic and social infrastructure; and implementation of structural and institutional reforms to enhance economic efficiency and encourage private saving and investment.

IMF Announces External Evaluation of ESAF

The IMF has a long tradition of broad internal review of its operational activities on a day-to-day basis, and of periodic in-house evaluation of core areas of its work that is reviewed by the Executive Board. Occasional studies are also commissioned from outside experts. Partly for this reason, and in keeping with the objective of maintaining a lean organizational structure and containing costs, the IMF does not have a separate evaluation unit.

During fiscal 1995/96, the Board re-examined the IMF’s evaluation functions. At a meeting in February 1996, it acted to strengthen these functions. The Board adopted, for a two-year trial period, an approach under which it would identify annually with management which IMF activities warrant an evaluation and would set the terms of reference for each project, including the selection of outside experts. The number of studies would be limited to two or three a year.

Board members also agreed that the existing practice for in-house evaluation carried out by the staff should be strengthened, as well as the review and evaluation work undertaken by the Board as part of its regular activities.

As part of this effort, the IMF’s Office of Internal Audit and Review was reorganized and redesignated the Office of Internal Audit and Inspection, beginning May 1, 1996. The mandate of the office was expanded to permit it to conduct more reviews of all aspects of the IMF’s organizational structure and work practices.

It is in this context that the IMF’s management made the following announcement on October 30;

In the framework of the IMF’s policy for evaluating key instruments of the institution, an evaluation of several aspects of programs supported by the enhanced structural adjustment facility (ESAF) will be undertaken by independent external experts. On the basis of the terms of reference adopted by the Executive Board, the experts will concentrate particularly on three topics:

• developments in countries’ external positions during ESAF-supported programs;

• social policies and the composition of government spending during ESAF-supported programs; and

• the determinants and influence of differing degrees of national ownership of ESAF-supported programs.

The experts will have full access to all information in the IMF and will be invited to conduct ail consultations they judge appropriate. They are expected to complete their report by end-1997.

Liberalization of the exchange and trade system was another important element of Ghana’s reform program. Before 1983, the system suffered from foreign exchange controls, restrictive export regulations, pervasive quantitative restrictions on imports, and high trade taxes. Beginning in 1983, average effective export and import tariff rates were significantly reduced. By the latter part of the decade, Ghana had removed nearly all quantitative restrictions on imports.

The policy response to these changes has been impressive, according to the IMF study. By the late 1980s, severe fiscal imbalances were brought under control, and a distorted exchange and trade system was liberalized; by the end of 1991, inflation was lowered to 10 percent, from 123 percent in 1983. Strong recovery in real growth also triggered a tangible increase in real per capita incomes, reversing a long decline. And Ghana’s growth performance responded well to the liberalization of the exchange and trade regime and the elimination of price controls.

Important challenges remain. Amidst a high rate of inflation and lagging efforts to achieve structural reform, the private sector’s role remains limited, owing, in part, to the continued large role played by the public sector in economic decision making. Apart from the need to reduce government intervention in the economy, other reform priorities include parastatals, the regulatory framework governing investment and tax policy, and primary education and literacy.


From 1960 through the early 1970s, Senegal followed inward-looking policies and the economy grew at a low rate compared with neighboring countries. A series of droughts during 1978-84, combined with deteriorating terms of trade and inappropriate financial and structural policies, further weakened Senegal’s economic performance. Average yearly growth declined to 2 percent during 1978-84 from nearly 5 percent for the 1974-77 period.

In the early 1980s, Senegal undertook a series of macroeconomic stabilization and reform measures that helped reduce macroeconomic imbalances and inflation. Senegal also registered some progress in implementing structural reforms to increase production, exports, and job creation. To eliminate barriers to private sector activity, it took steps to liberalize labor legislation, prices, and external trade. And it achieved visible breakthroughs in privatization and restructuring public enterprises.


Ghana: Growth and Inflation

Citation: IMF Survey 25, 001; 10.5089/9781451937442.023.A022

Data: Ghanian authorities, IMF staff estimates

According to the IMF study, Senegal’s weak and deteriorating competitive position may have worsened some of its economic difficulties during the reform period. Of special concern was the substantial appreciation of the CFA franc between 1986 and 1993 relative to the U.S. dollar—a situation that contributed to, if it did not cause, the poor performance of Senegal’s exports. Similarly, the large increase in real interest rates in Senegal in the late 1980s may have helped dampen domestic investment.

Two obstacles hindered Senegal’s reform efforts throughout 1978–93, according to the IMF study:

External shocks undermined growth, especially during 1989–93. Senegal’s narrow production and export base, and its dependence on energy imports, made the economy particularly vulnerable to terms-of-trade shocks and adverse weather, with negative consequences for output, saving, and investment.

Structural rigidities persisted. Private sector companies held onto their monopolies in such sectors as sugar, cement, and petroleum importing and refining, while state enterprises retained their monopoly over rice imports, groundnuts, and the groundnut oil sectors. And deficiencies in the regulatory and legal environment failed to provide a healthy climate for private sector activity; notably lacking were strong incentives for higher investment and exports. If accompanied by adequate macroeconomic and structural policies, the 50 percent devaluation of the CFA franc in January 1994 (see Special Supplement, IMF Survey, March 21, 1994) could prove salutary in strengthening Senegal’s external competitiveness and its ability to attract larger volumes of private investment.

Uganda (1987-95)

Uganda faced a difficult situation in the mid-1980s and throughout much of its adjustment period that began in 1986. The civil war had devastated transportation, power, and water facilities. In 1986, per capita GDP was 60 percent below its level of 1970, inflation had risen to 240 percent, and external debt service was more than 50 percent of exports. A fixed exchange rate had eroded the country’s competitiveness, leading to an acute shortage of foreign exchange, the emergence of parallel markets, and growing external payments arrears. By 1987, exports other than coffee had all but ceased and Uganda suffered annual declines in its terms of trade every year from 1986 to 1992. Largely as a result, Uganda’s ratio of scheduled debt service to exports increased sharply.

Uganda’s reform and stabilization program has been a major success. Economic growth averaged about 6.4 percent during 1987–94, while annual inflation fell to 3.4 percent in 1994-95. The ratio of gross domestic investment to GDP also increased markedly, to an average of 14.3 percent, the highest level since the mid-1960s. At the same time, the external current account deficit (excluding grants) declined markedly, to 5.9 percent of GDP in 1994-95 from seen as a call for more sustained and consistent policies.16.9 percent in 1988-89. Exports became more diversified, with noncoffee exports representing about 30 percent of the total. All of these changes helped foster a more market-oriented environment, with liberalized pricing and interest rates generating positive incentives for saving and investment.

Over the medium term, the IMF study suggests additional steps that Uganda might take to further raise living standards and stimulate economic growth—beginning with structural reform in the banking and financial sectors. It also emphasizes the need to strengthen the banking system and eliminate distortions in the allocation of financial resources. Finally, efforts should be undertaken to accelerate the transition away from a cash-based economy.

Effective management of its substantial external debt represents another major policy challenge confronting Uganda. Uganda’s adjustment efforts have relied to a great extent on disbursements by multilateral institutions. As a consequence, the country’s external debt rose to $3.4 billion at the end of June 1995 from $1.3 billion in June 1987, but since the added debt was highly concessional, the average interest rate and maturity on the debt stock improved substantially. Nevertheless, the debt-service ratio was high over the adjustment period, hitting a peak of 128 percent in 1991-92, before falling to a more manageable level of 28 percent in 1994-95. This level of debt, according to the study, demonstrates the need for substantial increases in export volumes and diversification and substantial debt relief.


Uganda: Real GDP Growth and underlying Trends

(In percent)

Citation: IMF Survey 25, 001; 10.5089/9781451937442.023.A022

Data: Ugandan authorities, IMF staff estimates

The Road Ahead

While Africa confronts major economic challenges, the overall message conveyed from the reform and stabilization experiences in Ghana, Senegal, and Uganda remains positive. All three countries have shown progress in enhancing the efficient use of resources. At the same time, the uneven success in mobilizing domestic political support for reform and stabilization should be seen as a call for more sustained and consistent polices.

Drawing on the recent experiences of Ghana, Senegal, and Uganda, the IMF study endorses three broad policy initiatives to assist economic reform and stabilization in sub-Saharan Africa:

•Public policies aimed at keeping the rate of inflation low, reducing macroeconomic uncertainty, and promoting financial deepening can have significant and immediate positive effects on private saving and investment.

•Measures should also be taken to lower budget deficits—without, however, reducing public investment in socioeconomic infrastructure (such as schools and hospitals). Instead, greater attention should be given to increasing revenues through a broadened, and more equitable, tax base and improvements in revenue collection.

• Finally, confronted with increasing competition for international private direct investment, more of the resources for attaining satisfactory and sustainable growth in sub-Saharan Africa will have to be generated domestically. In this context, the indigenous business sector will need to play a major role. Accordingly, public policies should be aimed at fostering an environment conducive to private sector development.

Adjustment for Growth: The African Experience, by Michael T. Hadjimichael, Michael Nowak, Robert Sharer, Amor Tahari, and a staff team from the IMF’s African Department, is No. 143 in the IMF’s Occasional Paper series. Copies are available for $15.00 from Publication Services, Box XS 600, International Monetary Fund, Washington, DC 20431, U.S.A. Telephone: (202) 623-7430; fax: (202) 623-7201; Internet:

Mandela and Camdessus Discuss South African Prospects

Following are edited excerpts of comments by South African President Nelson Mandela at a press conference, held with IMF Managing Director Michel Camdessus, in Johannesburg on October 18. At the press conference, Camdessus expressed confidence that President Mandela’s leadership would succeed in overcoming the challenges facing South Africa: instability in exchange markets and speculation against the rand, and high unemployment. Camdessus supported South Africa’s strategy for growth, employment, and redistribution. He welcomed the government’s commitment to keeping the budget deficit under control, maintaining a policy of trade openness, and continuing privatization. He also welcomed the “spirit of consensus building,” in which the government sought to associate all segments of society with the adjustment effort.

In introducing Managing Director Camdessus, President Mandela remarked that “one of the big issues I put before him this morning was the question of helping us increase our foreign reserves, because one of the problems we face concerning the rand is speculators. We must build up our reserves, as well as the strategies against the danger of speculation against the rand. Once our foreign reserves are strong, we will be able to withstand speculation from any source or institution in the world.”

Further on the possibility of the IMF’s providing aid to South Africa, President Mandela said: “If we want IMF assistance, the IMF must be convinced that the way that we are handling our monetary policy complies with the guidelines it has set. I am personally convinced that the guidelines it has set, as an international monetary body, are very good—without any country allowing the IMF to undermine its sovereignty. These guidelines are absolutely necessary because the IMF wants to be sure that its expertise in giving loans is made use of.”

“What is important is that we want financial assistance from the IMF. Such assistance must be worked out against the background of the IMF’s guidelines—as well as the guidelines we feel are necessary—and take into account the concrete conditions existing in this country.”

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The IMF Survey (ISSN 0047-083X) is published by the International Monetary Fund 23 times a year, plus an annual Supplement on the IMF, an annual Index, and occasional supplements. Editions are also published in French and Spanish. Opinions and materials in the IMF Survey, including any legal aspects, do not necessarily reflect the official views of the IMF. Material from the IMF Survey may be reprinted, provided due credit is given. Address editorial correspondence to Current Publications Division, Room IS9-1300, IMF, Washington, DC 20431 U.S.A. Telephone: (202) 623-8585; or e-mail comments to The IMF Survey is mailed first class in Canada, Mexico, and the United States, and by airspeed elsewhere. Private firms and individuals are charged an annual rate of $79.00. Apply for subscriptions to Publication Services, Box XS600, IMF, Washington, DC 20431 U.S.A. Telephone: (202) 623-7430. Cable: Interfund. Fax: (202) 623-7201. Internet:

IMF Survey: Volume 25 1996
Author: International Monetary Fund. External Relations Dept.