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AfricaMoney | August 21, 2017

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Mauritius to implement strong reforms to spur growth & avoid middle-income trap

Mauritius to implement strong reforms to spur growth & avoid middle-income trap

According to the IMF, the seven small middle-income countries facing this trap in sub-Saharan Africa are Mauritius, Botswana, Cabo Verde, Lesotho, Namibia, Seychelles, and Swaziland. (Image: honeymoonpackagemauritius)

Mauritius, together with other small middle-income economies, must gear up to face challenges in its transition to a high-income economy, as the IMF has warned that in the absence of strong reforms to boost growth, such nations are at high risk of falling into a ‘middle-income’ trap.

Overall, the peer-to-peer learning organised by the International Monetary Fund (IMF) African Department and the Africa Training Institute in Mauritius last November, has concluded that Sub-Saharan Africa’s small middle-income countries should implement strong reforms to boost growth and avoid the ‘middle-income trap.’

The concept of a middle income trap grew from the observation that middle-income countries graduated to high-income status far less often than low-income countries transitioned to middle-income countries.

The seven small middle-income countries facing this trap in sub-Saharan Africa are Mauritius, Botswana, Cabo Verde, Lesotho, Namibia, Seychelles, and Swaziland.

The peer- to-peer learning has been a great occasion for the participants to examine the common policy challenges of these countries, review what different countries have done to address them and finally, how IMF surveillance can build on successful approaches to help countries move forward.

Participants have also explored the policy responses to challenges to boost growth in five key areas — macroeconomic vulnerability, employment and inclusiveness, productivity growth, financial inclusion, and the political framework of economic reform.

Further, to allow for a more intensive peer learning approach used quite rarely by the IMF, small breakout sessions were held among country participants with group discussions and presentations leading to review of country experiences and failure by using specific policy initiatives.

Opening the seminar, IMF African Department Deputy Director, Anne-Marie Gulde-Wolf noted that “while sub-Saharan Africa remains the second fastest–growing region in the world, the small middle-income countries are among the slowest growing in the region, and there are significant downside risks to this outlook.”

Following the different workshops, a consensus has emerged on the following points: the importance of building sufficient policy buffers to absorb external shocks, especially since official financing flows for these countries will fall over time; and, promoting diversification as there is a need for policies to reduce skills mismatch.

Returning to an era of strong growth is necessary to achieve high-income status, but this will require deeper reforms and innovative policies to boost productivity.

The discussion on financial inclusion highlighted emerging evidence that financial inclusion is crucial for structural transformation and inclusive growth, while noting that small middle-income countries have some of the most uneven distributions of income in the world; and finally, during a discussion of political economy constraints on reform, country participants highlighted the importance of effective communication in building support. 

Finally, building on past success, small middle-income countries in sub-Saharan Africa have now set themselves the challenge of reaching high-income status and avoiding the middle income trap.

“While still positive, growth has slowed, as previous growth drivers weaken and the rise in per capita income wanes,” the IMF concluded.

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