Economic performance not just down to policy – IMF researcher


Johannesburg – Economic performance is not just limited to policy decisions, says Dr Gian Maria Milesi-Ferretti, deputy director of the International Monetary Fund (IMF) research department.

Milesi-Ferretti was speaking at a briefing on the World Economic Outlook October 2017 report, hosted by the UJ College of business and economics on Monday.

“Getting macro-management right is a necessary, but not a sufficient condition for sustained growth. It’s just not enough,” said Milesi-Ferretti. “Macro stability does not give you strong growth.”

But he explained that macro stability should not completely be disregarded as it is important.

“Macro stability is a necessary condition, if you bust your budget and go bankrupt people will not be willing to lend to you. If you cannot borrow in a country that needs to develop it becomes much harder to invest.”

Milesi-Ferretti pointed out the example of Venezuela where the wrong policy was detrimental for the economy. “There are basket cases like Venezuela, that is doing literally everything wrong. The economy has shrunk 30% in the space of a few years,” he said.

Along with having the correct policy, there needs to be development of human capital, innovation and even efforts to fight corruption, he explained.

Create certainty

Following the presentation Milesi-Ferretti told Fin24 that policymakers are increasingly having to make decisions despite uncertainty about the future. “The forecast may be right or wrong, but the policies have to be right.”

This is where maintaining macro stability comes in. “It boosts investor confidence and it ensures you have resources when you need them.

“We say fiscal austerity is a bad thing, but if you have high public debt and run into very difficult economic circumstances you will be constrained on external borrowing because you are perceived as vulnerable.”

Responsible macro management and broad revenue raising capacity creates a buffer to deal with emergencies, he explained.

Milesi-Ferretti also explained that high uncertainty, especially political in nature which may impact the direction of policy, affects investor sentiment.

Brazil’s transition of leadership between 2015/16 saw a number of corruption scandals come to light affecting governance. “Sentiment was extremely weak for long time. Investment stopped,” he said.

LISTEN: IMF on the importance of policy certainty

“These things should have a silver lining. In the end you should end up with better corporate governance, with stronger institutions, less corruption. But there is a transition period that needs to happen.”

When asked if political shifts such as the upcoming ANC elective conference would have a direct impact on economic performance, Milesi-Ferretti said it depended on the persistence of such an event.

“If it is a short-run phenomenon it is one thing. If it is more persistent, it will affect economic activity more directly,” he said.

The IMF has revised down South Africa’s growth outlook from 1% to 0.7% on the back of political uncertainty. The IMF projects growth for 2018 at 1.1%.

Following a visit to South Africa earlier in November, the IMF warned that the economic outlook is unlikely to improve.

“Despite South Africa’s institutional strength and favorable global conditions, increasing domestic political uncertainty and stalled reforms point to a challenging economic outlook,” the delegation’s head Ana Lucía Coronel said.

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