In the face of global economic turbulences, Africa’s economy has displayed resilience that has been reported as quite impressive. With inflation under control and a reduction in budget deficit it would seem that there is an overall improvement in macroeconomic stability of some African countries according to certain thresholds of conventional macroeconomics as applied to developing economies such as; low single digit inflation, fiscal deficits of less than 3% of GDP, debt to GDP ratio of 40% or less and foreign exchange reserves that can meet at least three months of import coverage.

However, systematic difference exists between developed economies and developing economies such as the relative effectiveness of macroeconomic tools. Although the rules and targets pertaining to macroeconomic management were led by policy makers in the developed world, they continue to be used as the drawing pen for macroeconomic policy in developing countries. The macroeconomic environment of developing economies is often more volatile than that in industrial countries and the fundamental causes are both external (fragile international environment) and internal (country specific problems). These are factors that put the macroeconomic stability of these economies in danger and further reveal the insufficiency of the conventional yardstick used to measure such “stability”.

According to the World bank, “macroeconomic policies improved in a majority of developing countries in the 1990s, but the expected growth benefits failed to materialize, at least to the extent that many observers had forecast…they were symptoms of deficiencies in the designs and execution of the reform strategies that were adopted in the1990s with macroeconomic stability as their center piece”. This clearly indicates that in the measurement of macroeconomics stability using fiscal deficit as an indicator for purposes of stabilization and controlling growth of government liabilities, growth and poverty reduction are often under-emphasized.

This is not to say that macroeconomic stability is not important:  because hyperinflation and out-of-control debts and deficits kills growth. However, it must be noted that restoration of stability will not automatically birth self-sustain growth and more importantly, price stability and fiscal sustainability should not be reduced to some foreign and restrictive targets or threshold. Even if a country reports sustained per capita income growth and macroeconomic stability in the conventional sense, such growth must be translated into inclusive development signaled by a significant decline in poverty, and a sustainable progress towards employment at decent wages and working conditions.

For instance, Botswana, a country hailed for its macroeconomic stability and sustained per capita income growth has a disappointing poverty rate.  Based on the national poverty line as at 2009-2010, the country’s poverty rate was 20.7% and 42% of its population live below the $2 a day. Its unemployment rate was at 17.8% with youth unemployment doubling that rate.  Life expectancy fell to a shocking 47 years which is well below the average. Yet this country was recognized as macro economically stable. Clearly, there is a need to review the threshold for macroeconomic stability in developing economies. Macroeconomic policies must be designed in such a way that it connects to the agenda for structural transformation and inclusive growth.


Written by O. Obaremi

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