Dealing with macroeconomic insecurity

The stop-go cycle associated with periodic balance-of-payments crises was a major constraint on long-term growth in many developing countries during the 1960s and 1970s. A radical change in policy advice in the late 1970s should have put an end to that cycle, by switching to a market-driven outward-oriented development strategy. This promised a return to macroeconomic stability along with a stronger, more inclusive and more secure economic growth path by removing State-induced distortions and unleashing the forces of global competition. In recent years, there has been a clear improvement in the macroeconomic performance of most countries in terms of lower volatility of key variables and a moderation in price inflation. However, this has not led to the expected economic dynamism, nor has it had the expected impact in reducing the vulnerability of people to downside economic risks, whether income declines or employment losses. Major regions of the world are still highly vulnerable to external shocks and in most countries, greater economic stability, narrowly defined, appears to have occurred at the cost of weaker growth of gross domestic product (GDP) and lower investment rates, at least when the situation is compared with that of the 1960s and 1970s. In the absence of effective countervailing measures, both national and multilateral, increasing instability in commodity prices and capital flows has, in particular, forced Governments to build excess international reserves at a further cost in terms of forgone investment and consumption. Thus, while the new policy regime has upended the old cycle, it has not replaced it with a vigorous alternative.

Sustainable Development Goals:

Decent Work and Economic Growth

Industry, Innovation and Infrastructure

Climate Action