Deepening Deepening Integration in SADC: Integration in SADC: - - PDF document

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Deepening Deepening Integration in SADC: Integration in SADC: Macroeconomic Macroeconomic Convergence Issues Convergence Issues for Botswana for Botswana

July 2006 July 2006 Keith Jefferis Keith Jefferis

Structure of Presentation Structure of Presentation

• Botswana Convergence Results in

Botswana Convergence Results in Regional Context Regional Context

• Botswana Recommendations

Botswana Recommendations

• Impact of Regional Integration on

Impact of Regional Integration on Botswana Botswana

• SADC Macro Convergence Programme

SADC Macro Convergence Programme Issues Issues

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Baseline Study for SADC Baseline Study for SADC Macroeconomic Macroeconomic Convergence Programme Convergence Programme Under FIP: Under FIP: Overview of Preliminary Overview of Preliminary Results Results

Primary Macroeconomic Primary Macroeconomic Convergence Indicators Convergence Indicators

>1% >1% >3% >3% >5% >5% Deficit/GDP Deficit/GDP <3% <3% <9% <9% <9% <9% Current Current Ac/GDP Ac/GDP <60% <60% <60% <60% <60% <60% Debt/GDP Debt/GDP <3% <3% <5% <5% <9.5% <9.5% Inflation Inflation 2018 2012 2008 Year

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Secondary Macroeconomic Secondary Macroeconomic Convergence Indicators Convergence Indicators

35% 35% 30% 30% 25% 25%

• Dom. S (%
• Dom. S (%

GDP) GDP) 6 6 6 6 3 3 FX res (imp. FX res (imp. cover, m) cover, m) 30% 30% 30% 30% 30% 30%

• Dom. I (%
• Dom. I (%

GDP) GDP) 5% 5% 5% 5% 10% 10% CB CB cred cred to to gov gov (% rev) (% rev) 7% 7% 7% 7% 7% 7% Econ growth Econ growth 2018 2012 2008 Year

Inflation Inflation

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Les 04 Les 07 Zam 04 Zam 07 Moz 04 Moz 07 Bots 04 Bots 07 Mal 04 Mal 07 Nam 04 Nam 07 SADC target

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Budget balance (excl. Budget balance (excl. grants) grants)

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% L e s 4 L e s 7 Z a m 4 Z a m 7 M

• z

4 M

• z

7 B

• t

s 4 B

• t

s 7 M a l 4 M a l 7 N a m 4 N a m 7 % of GDP SADC target

Budget balance (incl. Budget balance (incl. grants) grants)

• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% L e s 4 L e s 7 Z a m 4 Z a m 7 M

• z

4 M

• z

7 B

• t

s 4 B

• t

s 7 M a l 4 M a l 7 N a m 4 N a m 7 % of GDP SADC target

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Public Debt Public Debt

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% L e s 4 L e s 7 Z a m 4 Z a m 7 M

• z

4 M

• z

7 B

• t

s 4 B

• t

s 7 M a l 4 M a l 7 N a m 4 N a m 7 % of GDP SADC target

Current Account of BoP Current Account of BoP

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% L e s 4 L e s 7 Z a m 4 Z a m 7 M

• z

4 M

• z

7 B

• t

s 4 B

• t

s 7 M a l 4 M a l 7 N a m 4 N a m 7 % GDP SADC target

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GDP growth GDP growth

0% 1% 2% 3% 4% 5% 6% 7% 8% L e s 4 L e s 7 Z a m 4 Z a m 7 M

• z

4 M

• z

7 B

• t

s 4 B

• t

s 7 M a l 4 M a l 7 N a m 4 N a m 7 % of GDP SADC target

Country Responses Country Responses

• Considerable variation:

Considerable variation:

– – Degree of integration of SADC convergence Degree of integration of SADC convergence programme into policy framework programme into policy framework – – Degree of attention devoted to convergence Degree of attention devoted to convergence issues issues – – Openness to discussion of difficult / critical Openness to discussion of difficult / critical issues issues – – Willingness to question aspects of SADC Willingness to question aspects of SADC convergence programme convergence programme

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Country Responses Country Responses

• Considerable variation:

Considerable variation:

– – Availability of macroeconomic data, Availability of macroeconomic data, especially for official forecasts especially for official forecasts – – Availability of independent reports / Availability of independent reports / commentary / analysis commentary / analysis – – Capacity to continue convergence Capacity to continue convergence monitoring monitoring

Botswana Findings Botswana Findings

• Botswana

Botswana’ ’s convergence performance s convergence performance good, due to long good, due to long-

• term economic

term economic record record

• No major macroeconomic imbalances

No major macroeconomic imbalances

• Will meet primary convergence targets

Will meet primary convergence targets

• BUT

BUT -

• concerns about long

concerns about long-

• term

term growth prospects growth prospects

• Several worrying findings

Several worrying findings

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Botswana weaknesses Botswana weaknesses

• Poor quality of macro data in some

Poor quality of macro data in some areas areas

• Lack of updated, publicly available

Lack of updated, publicly available macro forecasts/projections macro forecasts/projections

• Sensitivity to (constructive) critical

Sensitivity to (constructive) critical comment comment – – major contrast with IMF major contrast with IMF programme countries programme countries

Botswana Botswana Recommendations Recommendations

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Key Economic Challenges Key Economic Challenges

• Boosting investment and long

Boosting investment and long-

• term

term economic growth economic growth

• Reducing poverty & unemployment

Reducing poverty & unemployment

• Managing impact of HIV/AIDS

Managing impact of HIV/AIDS

• Ensuring fiscal sustainability

Ensuring fiscal sustainability

• Promoting economic diversification

Promoting economic diversification

• Facilitating new sources of exports

Facilitating new sources of exports

Key Constraints Key Constraints

• Real exchange rate

Real exchange rate -

• overvalued
• vervalued
• Inflation & interest rates

Inflation & interest rates – – too high too high

• Impact of HIV/AIDS

Impact of HIV/AIDS – – growth, fiscal growth, fiscal

• Productivity

Productivity – – too low too low

• High costs of doing business

High costs of doing business

– – Unavoidable (location, water) Unavoidable (location, water) – – Manageable (bureaucracy) Manageable (bureaucracy)

• Complacency/slow policy implementation

Complacency/slow policy implementation

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Policy Recommendations Policy Recommendations

• All govt. policies to focus more on efficiency,

All govt. policies to focus more on efficiency, productivity and competitiveness productivity and competitiveness

• Improve economic flexibility and adaptability

Improve economic flexibility and adaptability

• Inflation a key problem

Inflation a key problem – – linked to linked to productivity productivity

• Resolve exchange rate and monetary policy

Resolve exchange rate and monetary policy conflicts (active MP and pegged XR) conflicts (active MP and pegged XR)

• Strengthen trade policy formulation

Strengthen trade policy formulation

Policy Recommendations Policy Recommendations

• Resolve FIAS, WBDB issues

Resolve FIAS, WBDB issues

– – Business licensing, Land Business licensing, Land – – Skills & Recruitment, Work permits Skills & Recruitment, Work permits

• Speed up deregulation and privatisation

Speed up deregulation and privatisation

• Improve trade policy coherence

Improve trade policy coherence

– – Trade facilitation Trade facilitation – – Liberalisation vs. protectionism Liberalisation vs. protectionism – – Use SACU to promote interests Use SACU to promote interests

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Impact of Regional Impact of Regional Integration Integration Impact & Relevance of Impact & Relevance of Regional Integration Regional Integration

• Trade growth important for Botswana

Trade growth important for Botswana

• But smaller SACU members will not be main

But smaller SACU members will not be main beneficiaries of SADC trade integration beneficiaries of SADC trade integration

• Botswana

Botswana’ ’s main gains from: s main gains from:

– – Liberalisation of trade in services (non Liberalisation of trade in services (non-

• SACU)

SACU) – – Trade facilitation, Trade facilitation, NTBs NTBs, administrative barriers , administrative barriers – – Reduction of SACU tariffs vs. region and Reduction of SACU tariffs vs. region and RoW RoW

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Implications of Long Implications of Long-

• term

term Regional Integration Plans Regional Integration Plans

• SADC Customs Union

SADC Customs Union

– – Revenue distribution, compensation Revenue distribution, compensation – – Expand SACU? Expand SACU?

• SADC Common Market

SADC Common Market

– – Labour mobility? Labour mobility?

• SADC Monetary Union

SADC Monetary Union

– – too big and dissimilar? too big and dissimilar? – – XR and monetary policy implications XR and monetary policy implications – – expand CMA? expand CMA?

Outstanding Issues Outstanding Issues – – SADC Macro Convergence SADC Macro Convergence Programme Programme

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Questions and Problems Questions and Problems

• Purpose of convergence programme /

Purpose of convergence programme / indicators? indicators?

– – SADC FIP, but beyond that? SADC FIP, but beyond that? – – monetary union requires convergence, but not monetary union requires convergence, but not general regional economic integration; general regional economic integration; – – can provide useful regional peer review can provide useful regional peer review mechanism (alt to IMF/WB), but what sanction? mechanism (alt to IMF/WB), but what sanction? – – indicators seen as indicators seen as “ “imported imported” ” (Maastricht), need (Maastricht), need further thought and refinement further thought and refinement

Questions and Problems Questions and Problems

• General regional economic integration

General regional economic integration requires macroeconomic stability: requires macroeconomic stability:

– – supports higher growth supports higher growth – – reduces regional risk and uncertainty, boosts reduces regional risk and uncertainty, boosts investment flows investment flows – – will lead to passive convergence will lead to passive convergence – – but other constraints to intra but other constraints to intra-

• regional trade

regional trade ( (NTBs NTBs, slow liberalisation) more of a problem , slow liberalisation) more of a problem

• Slow progress on FTA undermines credibility

Slow progress on FTA undermines credibility

• f broader integration, along with
• f broader integration, along with
• verlapping RIAs
• verlapping RIAs

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Questions and Problems Questions and Problems

• Strict, active convergence not needed for general

Strict, active convergence not needed for general economic (trade etc.) integration economic (trade etc.) integration

• Only needed for monetary union, but this is far

Only needed for monetary union, but this is far distant; distant;

• Both timetable and MU process lack credibility; not

Both timetable and MU process lack credibility; not

• n policy radar screen
• n policy radar screen
• Monetary union needs further analysis on

Monetary union needs further analysis on desirability, feasibility and timetable desirability, feasibility and timetable

• If pursued, needs policy convergence (exchange

If pursued, needs policy convergence (exchange rate & monetary policy) as well as indicator rate & monetary policy) as well as indicator convergence convergence

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