Country Economic Memorandum
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Publication
Jamaica - Country Economic Memorandum : Unlocking Growth
(World Bank, 2011-05-26)The objective of this report is to identify the main obstacles to longer term growth in Jamaica. The report takes a holistic approach, examining a large set of economic and social factors that may be hindering growth and filtering them through a growth diagnostic analysis to narrow the focus to those that constrain growth the most. Building on the results of the growth diagnostic analysis, the report then discusses each key obstacle and identifies possible reform scenarios to unlock growth in Jamaica. The report also examines how the country might further accelerate growth through private sector development. This Country Economic Memorandum assesses the key causes that have stalled Jamaica's economy over the past four decades and presents recommendations to unlock its growth potential. There is a basis for optimism in that Jamaica has had political stability, high rates of private investment, significant reduction of poverty in rural and urban areas, and improved income distribution. Nonetheless, this report shows that, since independence in 1962, long-term economic growth has been disappointing and underperformed most other countries. The findings of this study indicate that Jamaica's disappointing economic performance is traceable to low productivity caused by (i) deficiencies in human capital and entrepreneurship that are due to high migration rates and to deficiencies in the quality of education and training offered to the labor force, among other factors, (ii) a high rate of crime, and (iii) distortionary tax incentives combined with 'enclave' development that does not spill over to the rest of the economy. -
Publication
Colombia : Country Economic Memorandum, The Foundations for Competitiveness
(Washington, DC, 2005-11)Since Colombia's last Country Economic Memorandum (CEM) (1989) the country has endured several years of slow growth, burgeoning fiscal deficits, and high levels of debt. Colombia now is seeking to join a free trade agreement (FTA) with the United States in the hope of stimulating growth and improving living conditions for the country as a whole. In response to the opportunities and challenges presented by the proposed FTA with the United States, the Colombian government has launched an "internal agenda," an action plan that involves major stakeholders -- public sector, private sector, and regional government -- aimed at obtaining greater levels of competitiveness. The government has articulated the need for greater understanding of the impact of the proposed FTA, and a strategy for a reform agenda that would enable the country to capture the potential benefits from freer trade and facilitate the transition to greater openness. This report is produced as an input into Colombia's reform agenda. It starts with an executive summary and policy report which presents the main findings and key policy recommendations of the three chapters comprising the report. Chapter 1 evaluates Colombia's business and growth environment and the likely challenges the manufacturing sector will face in taking advantage of the FTA with the United States. The chapter consists of three sections. Section I uses detailed survey data to identify the top constraints on growth and competitiveness of Colombian firms. Section 2 analyzes key developments in the manufacturing sector following the trade liberalization of 1990-91 using micro-level data, and highlights areas where reforms are needed. Section 3 examines the challenges and opportunities faced by small and medium-sized businesses in confronting a more open trading environment. Chapter 2 builds on the microeconomic issues raised in the first chapter, and follows with an evaluation of macroeconomic and fiscal (tax and expenditure) policies that are important for making the Colombian economy competitive. In this context, the study also evaluates the sustainability and trajectory of public debt. Finally, Chapter 3 examines the likely impact of agricultural liberalization on income distribution in the country under the proposed Colombian-U.S. FTA -- identifying who are the likely gainers and losers -- and assesses its impact on economic growth and poverty in the country. -
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Bolivia : Country Economic Memorandum, Policies to Improve Growth and Employment
(Washington, DC, 2005-10)Bolivia is today at a crossroads. Several years of growth were achieved in the early and mid 1990s resulting from structural reforms which encouraged an upswing in private investment and productivity gains. However, more recently a series of economic shocks have hit Bolivia. These shocks not only had a negative impact in and of themselves, but they also led to growing political and social instability and public disenchantment with the reform program, which has lost momentum in the past five years. This, in turn, reinforced an economic downturn, to the point where the gains in poverty reduction and employment creation of the 1990s have been lost. This report recommends that once a degree of political consensus and social stability is achieved, Bolivia should retake the reform agenda to promote private investment and productivity gains, tackling micro-level obstacles such as contract security, legal enforcement, legal and regulatory burden, and trade policy, among others. The report outlines policies that would allow Bolivia to achieve faster growth. Development and poverty have many dimensions, and growth is necessary-but not sufficient-for development and poverty reduction. This report is focused narrowly on growth. Drawing on long term trends, it diagnoses current problems in light of the country's growth objectives that are being supported by the Bank's overall program as articulated in the Country Assistance Strategy. -
Publication
Uruguay : Sources of Growth, Policies for the Development of Human Capital, Integration, Competition and Innovation
(Washington, DC, 2005-06)Uruguay, with a prosperity built on beef and other meat exports, was among the fastest-growing economies in the world at the turn of the twentieth century. In parallel with economic successes driven by exports under a liberal trade regime, early in the 20th century, Uruguay had already initiated a strong and efficient welfare state. By contrast, the slowdown in per capita GDP growth has been more severe in the past 40 years (over 1961-99 per capita GDP growth averaged 1.1 percent, which is two-thirds of the rate achieved by Latin America) - except in the nineties when Uruguay (temporarily) grew at a faster rate than the region. In the 1961-1999 period, the rate of growth was less than half that of industrial countries, and less than one-fourth of that of East Asia. Uruguay must consolidate its incipient economic recovery following a prolonged, and deep recession: the economy shrank 17 percent, and household incomes dropped over 20 percent in real terms over 1999-2003. Notwithstanding, the economy bounced back strongly since mid-2003, and GDP growth in 2004 is estimated at 12.3 percent; the level of unemployment fell from almost 20 percent at the end of 2002, to 12.1 percent at the end of 2004. However, there is a qualitative difference between economic recovery and sustained growth. The country's relatively poor growth performance over the last half century can be traced to several key structural weaknesses, i.e., a pro-cyclical fiscal policy, intrinsically associated with lack of flexibility in social spending; a high and growing dependency ratio (between retirees and the working age population) - worsened by emigration by young people - and increased levels of informal employment; and, lack of effective competition in infrastructure sectors, dominated by the public sector and - in a related manner - the setting of tariffs with a fiscal criterion that limits incentives to increase efficiency, among several other structural factors. The objective of this study is to help develop a "shared" vision of growth with equity in Uruguay, but, unless shared, the policies and reforms discussed are unlikely to be implemented, maintained, or to be credible. The first pillar of this framework involves policies leading to fiscal and financial stability, the efficient operation of factor markets (capital and labor), and, the strengthening of social protection. The second pillar of policies and reforms aims at the creation of an investment climate, favorable to the accumulation of physical and human capital; it includes trade and integration policies, the development of a competitive framework - particularly in infrastructure sectors; and, policies on education and health for the development of human capital. The third pillar is formed by the policies and reforms that promote growth driven through innovation; it will require a thorough transformation of institutional capabilities, entrepreneurial culture, and the system of innovation. -
Publication
Organization of Eastern Caribbean States : Towards a New Agenda for Growth
(Washington, DC, 2005-04)The Organization of Eastern Caribbean States (OECS) is at an economic crossroads. A secular slowdown in growth, a radical transformation of the external environment, high debt and fiscal imbalances, and persistent unemployment and poverty have combined to create an imperative for redefining the OECS strategy for growth and economic development. The crucial elements of such a strategy are: (1) the formulation of a long-term vision that positions the OECS Economic Union in the global economy; (2) reorientation o f the basic development model toward greater openness, competition and a more level playing field in the sub-regional economy, and (3) the creation of new capacity in the labor force and the private sector to take advantage of emerging opportunities in the global market place, and in the public sector to coordinate and support the process o f deeper regional (and global) integration. The current challenge facing the sub-region is how to reinvigorate and sustain growth alongside the following imperatives --reducing high unemployment and poverty rates, restoring fiscal and debt sustainability, and securing a more sustainable external position in an increasingly competitive global environment. -
Publication
Latin America and the Caribbean : A Time to Choose, Caribbean Development in the 21st Century
(Washington, DC, 2005-04)This report seeks to discuss the critical constraints to sustainable, job-creating growth, and to present policy options for the region and country Governments to stimulate such growth. It analyzes growth performance in the Caribbean over the last four decades, and highlights key determinants of past and also future growth. Given the recent deterioration in government finances, the report then studies key areas of government expenditure. A discussion of the climate for private investment follows, which looks at the framework that shapes the risks and returns for private investment. The report then discusses the impact of recent trade developments on the Caribbean, the future outlook in view of major ongoing changes in the international environment, as well as the opportunities that are likely to emerge, especially in the services sector. It then focuses on some key factors that have been significant in determining past growth in the Caribbean, including labor market issues; education, skill development and training; and, infrastructure. The report suggests a pro-active approach for the region to take on the challenges of a group of small states, facing severe resource constraints, eroding trade preferences, declining productivity, and increasing risk of macro instability. First, it argues that greater integration within the CARICOM region on several fronts will be a critical input into improving competitiveness. Second, on trade, the report argues that a negotiation of an orderly dismantling of preferences in return for increased technical and financial support would be in the region's interest. Third, improving the investment climate, and orienting it away from being subsidy-driven, addressing problems of high taxes and inefficient customs procedures, as well as specific infrastructure deficiencies, would help improve the quality of private investment and maintain the high levels of Foreign Direct Investment (FDI). Fourth, making the public sector more cost-effective and delivering services more efficiently, through greater reliance on the private sector, seeking cost efficiencies through regional cooperation. Fifth, improving the quality and effectiveness of human resources would enable diversification into knowledge-based activities including services, increase exports, and improve productivity in existing activities. -
Publication
Honduras - Development Policy Review : Accelerating Broad-based Growth
(Washington, DC, 2004-11-08)This Development Policy Review (DPR) discusses Honduras's development agenda with a special focus on accelerating economic growth. This focus emerges from the Honduras Poverty Reduction Strategy Paper (PRSP), which identified growth as the main determinant o f the evolution of poverty, and guides the review of policy developments in various economic, social and infrastructure sectors. To the extent that the measures and reforms recommended in this report are able to generate a more attractive investment climate in Honduras, they will clearly serve to promote a faster accumulation o f physical capital, which is one component of economic growth. The main thrust of most of these reforms, however, is to improve the quality of factor services and the efficiency of factor allocation, which, in a growth accounting framework, are reflected in faster productivity growth. Recommended are measures to expand the coverage and quality o f education, measures to promote financial market development, measures to remove price distortions, attract greater private investment and improve the regulatory framework, as well as measures contemplated on the governance front, especially in the area o f improving public sector financial management and the civil service. -
Publication
Brazil - Growth and Poverty Reduction in Rio Gande Do Norte: A State Economic Memorandum
(Washington DC, 2004-01-16)Brazil was the fastest growing country in the world between 1930 and 1995, with an average annual growth rate of 6.1 percent. By 2000, Brazil's per-capita income stood at R$6,500. While RN's per capita income is slightly above half the national average, it increased from 43 percent of the national average in 1947 to 47 percent in 1998, implying that RN's economy grew faster than that of Brazil for over half a century. This has also been true in recent years. Between 1990-1998, RN's income per capita showed a respectable trend growth rate of 3.0 percent. The close relationship between Brazil's economic growth and RN's economic progress in the last five decades reflects a response to common macroeconomic forces and external environment as well as the enormous influence of national policies and programs on RN's economy. However, the state can also implement policies and programs to stimulate growth and employment. For this purpose, an understanding of trends in state GDP and employment and of the sources of growth is important. RN's economy has undergone a rapid and welcome transformation from one dependent on salt, cotton, sugar, and cattle to one dominated by services. The service sector has increased its share of GDP from 40 percent in 1985 to 59 percent in 1998. Over this period, the share of industry declined from 50 to 34 percent and the share of agriculture fell from 9 to 7 percent, though its share of total employment remains relatively high at 18 percent, reflecting lower productivity of agricultural workers. The shares of services and industry in total employment are 53 and 29 percent, respectively. -
Publication
Jamaica - The Road to Sustained Growth : Country Economic Memorandum
(Washington, DC, 2003-12-04)Jamaica's poor growth performance has a number of well-known explanations, but they need to be supplemented for the latter half of the 1990s, by the loss of competitiveness. The negligible (measured) GDP growth in the 1990s is usually attributed to two factors: an adverse external climate and the financial crisis that arose from bank privatization to poorly capitalized investors, and, financial liberalization, unaccompanied by an appropriate regulatory strengthening. The poverty headcount however, was halved between 1992 and 1998, despite negligible measured GDP growth, which can be largely explained by a conjunction of several factors particular to the period: underestimated GDP growth, judging from the growth in consumption of power, and meat and fish, as well as the rapid growth of currency usage; inflation, which hurts the poor disproportionately, fell sharply; the relative price of food declined, owing largely to trade liberalization and the appreciation in the real exchange rate; other factors may have been the rise in real wages, and remittances. But two important poverty-reducing factors are unlikely to continue to operate in the future, which means that further reduction of poverty is likely to depend on achievement of sustained growth. The report questions Jamaica's self-sustaining and job-creating growth restoration, and argues that this requires improving international competitiveness and productivity, while also addressing short-term exigencies. The policy options are grouped into three categories - those necessary to limit the risk of a crisis and its effect, with a likely immediate impact; those likely to have an impact in the short-term; and, those likely to have an impact in the medium and long-term, but on which action is nonetheless needed now. The report suggests a 'bandwagon' approach to reforms, with policy actions needed on several fronts, in order to improve prospects for sustained growth, including measures that help avoid crises, since crises hurt the poor and damage growth prospects. Such an approach could involve: crisis-proofing actions; actions with short-term impact; and, actions with medium-long-term impact. Given that policy choices are likely to be difficult, an approach based on social dialogue and consensus-building is essential to creating ownership for future reforms by all stakeholders, and for maintaining and improving social peace. -
Publication
Brazil : Stability for Growth and Poverty Reduction
(Washington, DC, 2003-01-31)The importance of macroeconomic stability for growth, and poverty reduction is now accepted in Brazil. As of 1964, the country followed responsible macroeconomic policies, in the pursuit of stability, reconfirmed by the new Government in January 2003. The report focuses strictly on three key macroeconomic issues, critical to assure stability, avoid crises, and hence allow poverty reduction on a sustainable basis. Though much has been achieved, stability, and higher growth in Brazil now depend on reforms along three main axes: Structural fiscal reforms, to allow flexible public spending towards a higher primary surplus; moving towards a different public debt composition; and, ensuring an external adjustment, sustainable and in tandem with higher growth. The report argues for reducing volatility, and uncertainty to achieve sustainable growth, and poverty reduction, and, based on its analysis, it further argues for a debt management strategy that includes gradual lengthening of maturity, and duration of debt; indexing more debt to prices, and reducing indexation to policy interest rates, or the exchange rate; issuing fixed-coupon instruments; and, making judicious use of alternative financial instruments, in addition to coordinating monetary policy, and public debt management, so that reserve requirements may be lowered, leading to more efficient cash markets.