Connect with us
Advertisement

No Time to Stand Still: Strengthening global growth and building inclusive economies

Nearly sixty years ago, a little-known band called the Beatles arrived in Hamburg, got a haircut, recorded their first song, and found their sound.
 

Taking a cue from the Fab Four, world leaders gathering for the Group of Twenty Summit this week can make the most of their time in Hamburg—and leave Germany with a sound plan to strengthen global growth.


Recovery on track


This summit opens with a sense of optimism. The upbeat mood stems from a global recovery that is now one year old and represents a welcome change from previous G20 meetings, where unsteady growth and downward revisions regularly cast a shadow. But it should be cautious optimism that prevails—policy efforts are still needed to strengthen the recovery and build more inclusive economies.
 

What’s behind this growth momentum?

A recent pickup in global manufacturing and investment activity signals that the recovery we projected in April remains on track. Our new forecast will be published in late July but we expect global growth to be around 3 and a ½ percent this year and next. However, as our most recent G20 Surveillance Note explains, the regional composition of growth has shifted.
 

In the United States—where the expansion is in its ninth year and cyclical unemployment has all but disappeared—a soft patch in early 2017 and policy uncertainty have tempered our outlook. The euro area—led by monetary stimulus and domestic demand—has exceeded expectations, and conditions in emerging economies have been boosted by robust growth in China and stabilizing conditions in Russia and Brazil. So yes, we have momentum. But we cannot rest easy—both old and new risks threaten our goal of creating higher growth that is shared by all.
 

Clouds on the horizon


The risks are not limited to one region or one type of economy and, in some cases, reflect the downside of forces that are driving the recovery. Financial vulnerabilities present an immediate concern. After a long period of favorable financial conditions, including low-interest rates and easier access to credit, corporate leverage in many emerging economies is too high. In Europe, bank balance sheets still need repair following the crisis. In China, a faster-than-projected expansion—if it continues to be fueled by rapid credit and increased spending—would potentially lead to unsustainable public and private debt in the future.
 

Left alone, this constellation of concerns could be a recipe for sudden financial distress, when the world’s economies also continue to struggle with several longer-term problems. Think of excessively high economic inequality, low productivity growth, population aging, and gender gaps. As our research shows, these challenges put a ceiling on potential growth, making it harder to raise incomes and living standards. How should the G20 respond? 
 

A call to action


The best place to start is by sustaining the current economic momentum. Monetary and fiscal policies can be used to support demand where needed and feasible. In Japan, for example, while output remains below potential, fiscal and monetary support, combined with favorable global economic conditions, has contributed to particularly strong growth in recent quarters. 
 

Yet these measures will only go so far. Countries need to look for ways to guard against risk, accelerate growth, and leverage the power of international cooperation. No country is an island, and policies taken by any nation can resonate stronger and last longer with coordination from the other G20 members. Our priorities should include:
 

  • Reinvigorating productivity growth. In many economies, increased resources for education, training, and incentives that encourage R&D would stimulate investment and unleash entrepreneurial energy. This would give a much-needed boost to how fast economies can sustainably grow.
  • Safeguarding the financial sector. The current period of growth can be used to address corporate and bank vulnerabilities by building up capital and strengthening balance sheets. Sustained growth also means that now is the time to improve—not roll back — oversight and regulatory systems implemented in the aftermath of the crisis.
  • Addressing excessive current account imbalances. Both surplus and deficit countries should confront this problem now to avoid larger corrections down the road. This summit is also a chance to strengthen the global trading system and reaffirm our commitment to well-enforced rules that promote competition while creating a level playing field.
     

Above all, we need to focus on building inclusive economies. This calls for structural reforms to lift incomes and for more support to those who face disadvantages from technological changes and global economic integration. It also calls for new efforts to empower women and close gender gaps.
 

In the G20 advanced economies, the difference between the number of men and women in the paid workforce is about 15 percentage points. The gap is even wider in the G20 emerging economies. If the G20 nations can meet their target of increasing female labor participation by 25 percent by the year 2025, it could create an estimated 100 million new jobs for the global economy. The substantial gains from closing the gender gap are just one example of what can be achieved if we act together. 
 

Another example, the Compact with Africa, initiated under Germany’s leadership of the G20 and designed primarily to boost private investment, can serve as a blueprint for stronger growth and economic diversification across the continent.
 

I would also emphasize the coordination required to tackle global humanitarian crises—whether it is epidemics, natural disasters, or famines. The G20 has taken a significant step by committing over $1 billion in aid to the millions facing famine in Somalia, South Sudan, Yemen and North-East Nigeria. In the months ahead, we must do more to address the underlying causes behind these devastating events.
 

Taken together, these challenges underscore the bottom line: the global recovery remains on track, but it will take tangible policy actions and stronger international cooperation to sustain and broaden the momentum. Like the band from Liverpool that went on to change the world, I hope that the G20 finds its groove in Hamburg. It should use this moment to come together—not only to achieve higher growth but also to ensure that the benefits of growth can be shared by all.


CHRISTINE LAGARDE was writing for the IMF blog

Continue Reading

Business

Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

This content is locked

Login To Unlock The Content!

Continue Reading

Business

Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

This content is locked

Login To Unlock The Content!

Continue Reading

Business

Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

Continue Reading
Do NOT follow this link or you will be banned from the site!