Macroeconomic Developments and Prospects in Low ‐ Income Developing Countries Min Zhu Deputy Managing Director Carnegie Endowment for International Peace February 18, 2016
Low ‐ income developing country group: diverse LIDC Sub-Groups by GNI per Capita and Population, 2014 2
Low ‐ income developing countries’ economic performance in historical perspective 3
LIDCs sustained strong growth for over a decade, notwithstanding the global crisis LIDC: Real GDP Growth (PPP weighted average, percent) 4
And thanks in part to tighter monetary policies and reduced fiscal imbalances, inflation was stabilized… LIDC Inflation (PPP weighted average, percent) 5
Public debt burdens eased reflecting debt relief, strong growth, and improved economic policies Public Debt (PPP weighted average, percent of GDP) 75 65 55 45 35 25 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 6
Global challenges facing LIDCs 7
The global economy has weakened, with global growth slower than previously expected Real GDP Growth (weighted avg., percent) 7 2010-2012 2013 6 2014 2015 5 4 3 2 1 0 World Advanced Economies Emerging Economies 8
And commodity prices have fallen sharply since mid ‐ 2014 Commodity Price Indices (Index, 2005 =100) 250 225 200 175 150 Total 125 Non-energy Crude Oil (US$ per barrel) 100 75 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 9
Recent global financial volatility has been among historical highs 10
Episodes of Sustained U.S. Dollar Appreciation 11
Macroeconomic challenges in LIDCs 12
Commodity price changes has had varied effects across LIDCs… The first-round income effect of recent commodity price declines (Percent of GDP, December 2015 / June 2014, Annualized) June 2014-December 2015 Diversified exporters Oil exporters Commodity exporters -12 -9 -6 -3 0 3 13
External financing conditions have also tightened for LIDCs with market access EMBIG Sovereign Spread (Basis Points, USD-denominated, As of 2/03/2016) 14
…resulting in significant currency depreciation Depreciation of Currencies (Selected LIDCs, June 2014-December 2015) 0 -10 -20 -30 -40 -50 Malawi Afghanistan Mauritania Ghana Rwanda Tanzania Zambia Mozambique Nigeria Papua New Guinea Mongolia Moldova Uganda Madagascar Gambia, The Diversified Exporters Commodity Exporters 15
The share of vulnerable LIDCs now highest since the global crisis Growth Decline Vulnerability Index, 2009-16 (LIDCs with low, medium and high vulnerabilities; in percent of total) unweighted) 100 80 60 40 20 0 2011 2012 2013 2014 2015 2016 Low Medium High 16
Looking ahead: three mega trends 17
Megatrend (1): Climate change 18
Medium ‐ term vulnerabilities : LIDCs are more exposed to natural disasters Average Annual Number of Droughts, Floods, Storms (Per million square kilometers) 19
Megatrend (2): Technological change 20
Megatrend (3): Demographic change 21
LIDCs, on average, have been growing at a rapid pace 1200 1500 300 600 900 0 1980 1981 1982 1983 1984 1985 1986 LIDCs: Per Capita GDP in U.S. Dollars, 1980-2015 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 22 2015
Domestic policy challenges remain: growth has been largely driven by factor accumulation, not productivity gains Contribution to Real GDP Growth (Percent, average 2000s) 6 TFP Human capital Labor Capital 5 4 3 2 1 0 -1 -2 All LIDCs Fragile Non-Fragile Commodity Diversified Exporters Exporters Sources: PRMED growth accounting database, and IMF staff estimates. 23
Policy priorities—different for diverse groups Key commodity prices are unlikely to rebound; commodity • exporters need to recalibrate policies – Short term: smooth adjustment where there is some policy room – Medium term: adjustment cannot be avoided; boost domestic revenue mobilization, achieve diversification, increase TFP through structural reform – Key lesson: build macroeconomic policy space during good times to allow countercyclical action during downswings Diversified exporters still enjoying strong growth should rebuild • eroded policy buffers for timely countercyclical policy action 24
Policy priorities that are relevant more generally Improve domestic revenue mobilization, rationalize spending, • Address key infrastructure gaps without endangering public debt sustainability • Modernize monetary frameworks • Enhance economic resilience (short and medium term) • Structural reforms are a must – Be aware of double ‐ edge nature of capital inflows • Build economic policy resilience and sound debt management – Consider appropriate pace and sequencing of capital account liberalization – 25
The IMF stands ready to help Countercyclical financial support for balance of payments needs • Continuous and ongoing policy advice and capacity building • Key IMF deliverables to boost countries’ resilience as they pursue their development • goals under the 2030 development agenda Reforms to IMF concessional facilities Boost support for capacity building in domestic revenues and international taxation Help countries address the macroeconomic dimensions of infrastructure gap; Address specific needs of fragile States and small developing countries; Enhance policy analysis on equity, inclusion, and environmental sustainability and bring it to operational work; 26
THANK YOU For underlying references to the presentation please see links below: https://www.imf.org/external/np/pp/eng/2015/111915.pdf http://www.imf.org/external/np/pp/eng/2015/061515.pdf 27
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