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Dollarization in Sub-Saharan Africa
Dollarization—the use of foreign currencies as a medium of exchange, store of value, or unit of account—is a notable feature of financial development under macroeconomically fragile conditions. It has emerged as a key factor explaining vulnerabilities and currency crises, which have long been observed in Latin America, parts of Asia, and Eastern Europe. Dollarization is also present, prominently, in sub-Saharan Africa (SSA) where it remains significant and persistent at over 30 percent rates for both bank loans and deposits—although it has not increased significantly since 2001. However, progress in reducing dollarization has lagged behind other regions and, in this regard, it is legitimate to ask whether this phenomenon is an important concern in SSA. This study fills a gap in the literature by analyzing these issues with specific reference to the SSA region on the basis of the evidence for the past decade.
From Ambition to Execution
The formal launch of the Sustainable Development Goals (SDGs) sets the global development agenda through 2030, placing significant emphasis on promoting social and environmental sustainability alongside economic growth and poverty reduction. Meeting the SDGs will require actions across a wide range of areas by both national governments and the international community. This paper examines the types of policies that developing countries will need to implement to foster economic transformation, to promote economic and social inclusion, and to meet key environmental objectives. Reducing inequality, achieving gender equity, and pricing energy and water resources appropriately receive particular attention.
Managing Volatile Capital Flows: Experiences and Lessons for Sub-Saharan African Frontier Markets
During the past three years the frontier markets of sub-Saharan Africa have received growing amounts of portfolio capital flows, with heightened interest from foreign investors. Compared with foreign direct investment, portfolio capital flows tend to be more volatile, and thus pose challenges for sub-Saharan African frontier markets. This study examines the evolution of capital flows since 2010 and discusses the policies these countries have designed to reduce risks from the inherent volatility of these flows.
Importing Inputs for Climate Change Mitigation: The Case of Agricultural Productivity
This paper estimates agricultural total factor productivity (TFP) in 162 countries between 1991 and 2015 and aims to understand sources of cross-country variations in agricultural TFP levels and its growth rates. Two factors affecting agricultural TFP are analyzed in detail – imported intermediate inputs and climate. We first show that these two factors are independently important in explaining agricultural TFP – imported inputs raise agricultural TFP; and higher temperatures and rainfall shortages impede TFP growth, particularly in low-income countries (LICs). We also provide a new evidence that, within LICs, those with a higher import component of intermediate inputs seem to be more shielded from the negative impacts of weather shocks.
Benchmarking Structural Transformation Across the World
This paper documents stylized facts on the process of structural transformation around the world and empirically analyzes its determinants using data on real value added by sector of economic activity (agriculture, manufacturing and services) for a panel of 168 countries over the period 1970-2010. The analysis points to large differences in sector shares both across and within regions as well as for countries at similar levels of economic development. Using both linear and quantile regression methods, it finds that a large proportion of the cross-country variation in sector shares can be accounted for by country characteristics, such as real GDP per capita, demographic structure, and population size. It also finds that policy and insitutional variables, such as product market reforms, openness to trade, human and physical capital, and finance improve the baseline model’s ability to account for the variation in sectoral shares across countries.
Macro-Structural Policies and Income Inequality in Low-Income Developing Countries
Despite sustained economic growth and rapid poverty reductions, income inequality remains stubbornly high in many low-income developing countries. This pattern is a concern as high levels of inequality can impair the sustainability of growth and macroeconomic stability, thereby also limiting countries’ ability to reach the Sustainable Development Goals. This underscores the importance of understanding how policies aimed at boosting economic growth affect income inequality. Using empirical and modeling techniques, the note confirms that macro-structural policies aimed at raising growth payoffs in low-income developing countries can have important distributional consequences, with the impact dependent on both the design of reforms and on country-specific economic characteristics. While there is no one-size-fits-all recipe, the note explores how governments can address adverse distributional consequences of reforms by designing reform packages to make pro-growth policies also more inclusive.
Cabo Verde
Cabo Verde faces development challenges from multiple structural factors, including insularity, territorial discontinuity, fragility of ecosystems, and scarcity of natural resources, namely water and arable land. Climate change implications are amplifying these challenges. As an island extension of the arid Sahel zone, Cabo Verde faces severe water shortage, which the country addresses more and more through energy intensive desalination, using electricity produced largely by thermal power plants, which depend entirely on imported fossil fuels. The resulting high energy prices directly impact the cost of water production. In conjunction with climate change induced aridity, the energy-water-climate nexus presents the core development challenge for the country.
Chad: Request for a Three-Year Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Chad
The COVID-19 pandemic, the volatility in oil prices, heightened insecurity, and a looming food crisis due to climate change have severely stressed an already vulnerable Chadian economy. The two Rapid Credit Facility (RCF) disbursements in April and July 2020 allowed Chad to meet its immediate financing and urgent balance of payment needs in the early stages of the pandemic. The authorities have requested Fund assistance under the ECF to support their post-COVID recovery and their plan to reduce debt vulnerabilities through a combination of a debt workout and a multi-year fiscal consolidation program. However, due to the death of the president following a resurgence of fighting with rebel groups in April and the delayed delivery of donor support, the treasury situation has become extremely tight, threatening social stability.
Dominica
This Selected Issues paper discusses the optimal management of Citizenship-by-Investment (CBI) program revenues in Dominica. Dominica’s CBI inflows have reached near 10 percent of GDP, increasing the country’s reliance on these revenues. It is argued that given their volatile and unpredictable nature, CBI revenues should be used prudently. Their use should be mindful of the chances of a sudden stop in these flows. It is therefore essential to prioritize investment, debt reduction, and saving in lieu of current expenditure, which is typically more difficult to reverse. Simulation analysis based on fiscal multipliers indicate that such combination of policies would boost GDP and help reach the regional debt target of 60 percent of GDP by 2030 as committed by the government.
The Growth Comeback in Developing Economies
Growth takeoffs in developing economies have rebounded in the past two decades. Although recent takeoffs have lasted longer than takeoffs before the 1990s, a key question is whether they could unravel like some did in the past. This paper finds that recent takeoffs are associated with stronger economic conditions, such as lower post-takeoff debt and inflation levels; more competitive real exchange rates; and better structural reforms and institutions. The chances of starting a takeoff in the 2000s was triple that before the 1990s, with domestic conditions accounting for most of the increase. The findings suggest that if today’s dynamic developing economies sustain their improved policies; they are more likely to stay on course compared to many of their predecessors.
