Emerging Markets tasked with basic reforms


BACK to the basics. That’s the simple prescription for Emerging Market (EM) and Developing Economies desirous of returning to the path of growth and transformation into the new digital economy.

At the eponymous Marrakech 2023 seminar yesterday, panellists advised EM and Low-Income Countries, (LICs) to return to focusing on basic improvements in the management of their economies. Fund Deputy Managing Director, Antoinette Monsio Sayeh, identifies these as “1st generation reforms” in governance, the regulatory environment for business, and the external sector to boost trade and stabilize the foreign exchange market. When prioritized, sequenced, and bundled together, Sayeh says, 1st generation reforms can help a weak economy chalk up an additional 4 percent growth, as did Senegal in 2019, when it posted an impressive 6.2 percent growth.

Correct, says Magdalena Rzeczkowska, Minister of Finance, Republic of Poland. Her country, she says, was able to climb out of bankruptcy and the ravages of hyper-inflation in the 1990s when it went back to 1st generation reforms on the insistence and backing of the European Union, to which it had just got accession. The Minister recalls that the reforms enabled Poland to surmount initial problems associated with market and social reforms necessary to exit its old status as a socialist enclave. By structuring and sequencing the reforms, Poland was able to “build strong institutions, improve infrastructure, and education”. The results, she says, speak for her dear country, which today boasts an unemployment rate as low as 3 percent.

Morocco, the host country of this year’s meetings, is another proud beneficiary of the sound economic counsel of focusing on 1st generation reforms. Nizar Baraka, Minister of Equipment and Water, says the country is on track to grow 3.5 percent this year in spite of several shocks to the economy. Morocco has weathered a particularly rough patch in the past half-decade: a five-year drought due to climate change and a recent earthquake, on top of the universal challenges of COVID-19 and Russia’s invasion of Ukraine. Morocco, he says, insists on equity and shared growth in its policy implementation. The nation invests heavily in social services like universal health and conditional cash transfers to the most vulnerable without shirking its duty to provide water and energy from renewable sources for its citizens. For this reason, the country is a consistent beneficiary of IMF and World Bank assistance.

Head of Emerging Markets Fixed Income at BlackRock, a New York-based multinational investment company, Amer Bisat, corroborates co-panelists’ views on the importance of 1st generation reforms. He says private sector financial institutions would only direct their resources to countries that have sorted out such basic issues as “macro-stability, regulatory environment, governance, and rule of law”, for fear of default and creditworthiness.

Today, it is a well-known fact that countries do not have the fiscal space to solve their resource needs. They must therefore bow to the dictates of the capital markets at large. It can only be in the interest of sovereign lenders if the markets perceive their economies as being “investment grade” and deserving of easy, cheap credit.

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