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6.1 Macroeconomic policies for diversification: Economic Report on Africa 2007

Written by: United Nations Economic Commission for Africa

Article Overview: the need for pragmatism over orthodoxy

6.1 Macroeconomic policies for diversification: Economic Report on Africa 2007

One key recommendation has to do with the need for pragmatic macroeconomic
policies if African economies are to be able to diversify. While macroeconomic stability
is important for the diversification of an economy to take root, not all components
of the macroeconomic framework need to be rigid. Stability alone through
conservative fiscal and monetary policies is not enough to ensure the deepening of
diversification. While contributing to stability, a conservative fiscal policy may end
up limiting the necessary fiscal space needed to boost investment. Such constrained
fiscal space, as the empirical results suggest, undermines diversification efforts.
Therefore, given that diversification of African economies is necessary for high and
sustained growth, pragmatism in designing macroeconomic policies becomes imperative.

For optimal results, African countries should realize that while macroeconomic stability
is important, some of the elements of the macroeconomic framework underpinning
the diversification and growth strategy need to be sufficiently flexible. This
requires a departure from typical macroeconomic frameworks, which are narrowly
focused on macroeconomic stability. Flexible fiscal space can be integrated within
the framework, and this in turn enables a country to boost investments, which has
been shown to be a key determinant of diversification.

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Article Tags: african countries, african economies, conservative fiscal policy, determinant, diversification efforts, economy, elements, empirical results, fiscal and monetary policies, frameworks, growth strategy, investments, macroeconomic framework, macroeconomic policies, macroeconomic stability, optimal results, pragmatism



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