By Favour Nnabugwu

Growth will slow from 7.3 per cent in 2010 to 6.3 per cent between 2011 and 2013, as developing countries including Nigeria reach full capacity according to the World Bank. As a result of the decline in the growth of developing countries, the World Bank advised developing countries to focus on tackling country-specific challenges such as achieving balanced growth through structural reforms.

Mr Justin Yifu Lin, World Bank’s Chief Economist and Senior Vice-President for Development Economics however, predicted that high-income countries will see growth slow from 2.7 per cent in 2010; 2.2 per cent in 2011 before picking up to 2.7 per cent and 2.6 per cent in 2012 and 2013 respectively. Developing countries need to tighten their monetary and fiscal policies and make exchange rates more flexible to avoid overheating and keep inflation in check.

According to him, “Globally, GDP is expected to grow 3.2 per cent in 2011 before edging up to 3.6  per cent in 2012. “But further increases in already high oil and food prices could significantly curb economic growth and hurt the poor.”

In contrast, he said, “Prospects for high-income countries and many of Europe’s developing countries remain clouded by crisis-related problems such as high unemployment, household and banking-sector budget consolidation, and concerns over fiscal sustainability among other factors”.

Besides, International Monetary Fund (IMF) described Ghana as a key example of a country that has had to shrink its fiscal deficits dramatically with the IMF saying that the country’s fiscal policies need to ‘carry the brunt of the adjustment.

In countries such as Benin, Malawi and Zambia, the Fund has also prescribed wage and hiring freezes for public-sector workers. Projections for the countries showed that the fiscal expansion projected for 2009 amounted to only 1.5% of GDP on average, and a fiscal tightening of 0.5% of GDP was projected for 2010.

Eight of the 13 countries, the IMF said, faced tighter fiscal constraints in 2010 than in 2009. The fund suggested greater flexibility compared to pre-crisis targets for lowering fiscal deficits, it is not a significant revision of the IMF’s framework, and cannot be equated to a genuine provision of fiscal policy space for LICs.

On the alternative, macroeconomic framework that would allow for policy space would incorporate the judgment that fiscal policy has to play a central role in driving the development process, and thus has to take the form of expansionary, public-investment-led fiscal policies. However, the IMF only assesses fiscal policy in terms of the costs of financing a fiscal deficit, while failing to factor in the costs of foregone growth and poverty reduction if the widening of the deficit were not allowed.

The IMF also fails to assess dynamically the budgetary position of LICs, based on the potential for mobilising additional domestic revenue, or for creating greater fiscal space with additional debt relief initiatives or further grant assistance.