1、Washington Consensus reforms and economic performance in sub-Saharan AfricaLessons from the past four decadesBelinda Archibong Brahima Coulibaly Ngozi Okonjo-IwealaAGI WORKING PAPER 27FEBRUARY 2021Belinda ArchibongBelinda Archibongi i is assistant professor of economics at Barnard College,Columbia U
2、niversity.Brahima CoulibalyBrahima Coulibalyii ii is vice president of the Global Economy and Development program at Brookings.Ngozi OkonjoNgozi Okonjo-IwealaIweala is nonresident distinguished fellow with the Global Economy and Development program at Brookings,chair of the Board of the Global Allia
3、nce for Vaccines and Immunization,and former finance minister of Nigeria.JEL classification:O10,O43,N37 Keywords:Washington Consensus,Structural Adjustment Programs,Policy Reform,Africa i ba2207columbia.edu ii BCoulibalybrookings.edu Africa Growth Initiative at Brookings 1 Abstract Over three decade
4、s after market-oriented structural reforms,termed“Washington consensus”policies,were first implemented,we revisit the evidence on policy adoption and the effects of these policies on socio-economic performance in sub-Saharan African countries.We focus on three key ubiquitous reform policies around p
5、rivatization,fiscal discipline,and trade openness and document significant improvements in economic performance for reformers over the past two decades.Following initial declines in per capita economic growth over the 1980s and 1990s,reform adopters experienced notable increases in per capita real G
6、DP growth in the post 2000 period.We complement aggregate analysis with four country case studies that highlight important lessons for effective reform.Notably,the ability to implement pro-poor policies alongside market oriented reforms played a central role in successful policy performance.Washingt
7、on Consensus reforms and economic performance in sub-Saharan Africa:Lessons from the past four decades 2 Africa Growth Initiative at Brookings 1.Introduction When economist John Williamson coined the term“Washington Consensus”in 1989,he was referring to a set of ten market-oriented policies that wer
8、e popular among Washington-based policy institutions,particularly as policy prescriptions for improving economic performance in Latin-American countries(Williamson,1993).These policies centered around fiscal discipline,market-oriented domestic reforms,and openness to trade and investment.In African
9、countries,the Washington Consensus inspired market-based reforms prescribed by international financial institutions(IFIs)like the World Bank and the International Monetary Fund(IMF),under“structural adjustment programs”(SAP).These reforms were often prerequisites for financial assistance to indebted
10、 African countries during the global recession and debt crisis of the 1980s,when the external debt rose sharply to unsustainable levels(Onyekwena and Ekeruche,2019;Naiman and Watkins,1999;Mkandawire and Soludo,1999).The story of how African countries got into a debt crisis that led to the introducti
11、on of structural adjustment programs is often told as follows:first,expansionary fiscal spending aimed at economic development spearheaded by newly independent African governments,struggling to recover from the ravages of European colonialism,increased government spending in the 1960s and 1970s.Gove
12、rnments also borrowed significantly to finance development expenditures over this time.Oil price shocks that significantly decreased the price of oil in 1980s led to declines in export revenue for many governments.This decline in export revenue,along with a collapse in world prices of primary agricu
13、ltural commodities,which made up 88 percent of Africas exports,resulted in a shortfall in revenue that put enormous pressure on governments finances(Onyekwena and Ekeruche,2019;Mkandawire and Soludo,1999).Additionally,government featured largely in domestic financial institutions like the banking se
14、ctor,with many African governments nationalizing foreign banks or creating new state-owned financial institutions(Mkandawire,1999).The global recession in the early 1980s,along with an increase in interest rates in donor countries,also raised interest payments on previously contracted loans,markedly
15、 increasing the debt burden of African countries and leading to the debt crisis of the 1980s(Onyekwena and Ekeruche,2019;Due and Gladwin,1991).By the early 1980s,African governments were in severe financial straits and,with lowered incomes,increasing poverty,and declining welfare,turned to IFIs for
16、debt relief.Among the conditions for relief,countries had to first agree to economic and financial reform policies along the lines of those outlined in the Washington Consensus to achieve macroeconomic stability and efficiency.The expectation was that market-oriented reforms would correct domestic p
17、olicy-induced distortions in prices,such as overvalued exchange rates,subsidies that led to artificially low agricultural commodity prices,high wage rates,low interest rates and subsidized input prices,which introduced inefficiencies in resource allocation,with detrimental effects on the economy in
18、the long-run(Due and Gladwin,1991;Williamson,1993;Easterly,2019;Chari,Henry,and Reyes,2020).The underlying assumption,as other scholars have pointed out,was that competitive markets would work well to efficiently allocate resources to residents in these African countries suffering under the burden o
19、f debt and illiberal fiscal and monetary policies(Easterly,2019).Hence,market-based policies like privatizing public enterprises,removing or relaxing exchange rate controls that biased export trade towards certain commodities and fiscal adjustment to balance budgets by reducing Africa Growth Initiat
20、ive at Brookings 3 spending on subsidies would support stronger economic growth.Several African countries adopted these market-oriented policies beginning in the 1980s.The number of reform adopters increased further following the introduction of the Highly Indebted Poor Countries(HIPC)initiative by
21、the World Bank and IMF in the mid-1990s.The HIPC program provided debt relief to countries with unsustainable debt provided they enacted many of the SAP policies(Onyekwena and Ekeruche,2019).It has been over three decades since these policies were first adopted across Africa and other developing cou
22、ntries,yet the evidence of their impact on economic outcomes has not been conclusively established in the literature.Most early literature finds that the policies failed to improve economic conditions in African countries for several reasons centered on the failure to account for political economy w
23、ithin countries,and the politics of conditionality and reforms that did not adequately emphasize the role of local ownership in shaping domestic economic policy(Ekpo,1992;Easterly,2000;Due and Gladwin,1991;Birdsall,Caicedo,and De la Torre,2010;Adedeji,1999;Mkandawire and Olukoshi,1995;Rodrik,2006;St
24、iglitz,2005).Other studies attribute the failures of the reforms to increases in domestic inflation and its adverse effect on real incomes and well-being post-reform(Due and Gladwin,1991;Ekpo,1992).The negative effects of the reforms were also disproportionately felt by rural farmers,especially wome
25、n working in food crop production.Ironically,while IFIs were advocating for the removal of agricultural subsidies in Africa,the advanced economies,including the United States and OECD countries,heavily subsidized agricultural production making it difficult for African farmers to compete(Due and Glad
26、win,1991;Mkandawire and Olukoshi,1995).The outcome of these market-oriented reforms was increased unemployment and socio-political unrest in several African countries in the 1980s and 1990s(Mkandawire and Olukoshi,1995;Due and Gladwin,1991;Ihonvbere,1993;Elson,1995).A more recent literature has high
27、lighted that the reforms were successful in improving economic growth,particularly when policymakers had the state capacity to implement them(Prati,Onorato,and Papageorgiou,2013;Grier and Grier,2020;Dollar and Svensson,2000).Taken at face value,these studies suggest that the de facto reductions in s
28、tate capacity required by some reforms may have contributed to their failure in some countries.For instance,the ratio of civil servants to the population in all sub-Sahara Africa(SSA)fell to 1 percent in 1996,lower than the 3 percent for other developing countries and much lower than the OECD averag
29、e of 7 percent(Sender,1999).Without a motivated,well-equipped,civil service,proper implementation and regulation of these reforms was often incredibly difficult.Over 30 years after the initial adoption of reforms in African countries,we re-examine the relationship between reform adoption and economi
30、c performance.The predictions of the Washington Consensus policies amount to the following testable hypotheses:(i)First,countries that implemented the market-oriented reforms will experience better economic outcomes in the following years compared to the years preceding the reforms;and(ii)second,cou
31、ntries that implemented reforms will perform better than the countries that did not.Since the early 2000s,African economies have experienced remarkable improvement in economic growth,with median country real GDP per capita growth rising from 0.2 percent per year on average in the 1980s and 1990s,whe
32、n many of the reforms were first implemented,to 1.6 percent over 2000 to 2019 as shown in Figure 1.The reforms also aimed to achieve lower and more stable inflation rates,partly through improved fiscal discipline.The rate of inflation in the region declined from double digits in the 1980s and 1990s
33、to stabilize at around 5 percent in the past two decades(Figure 2),suggesting that inflation stabilization has been relatively successful in many African countries.These observations raise the question of whether the reforms of Washington Consensus reforms and economic performance in sub-Saharan Afr
34、ica:Lessons from the past four decades 4 Africa Growth Initiative at Brookings the 1980s and 1990s could have played a role in the regions improved economic performance of the past two decades.With the benefit of more recent data,we revisit whether market-oriented reforms of the 1980s and 1990s may
35、have contributed to the positive economic outcomes for sub-Saharan Africa over the past decades,considering plausible alternative explanations.We refer to the economic literature on key Washington consensus policy reforms and classify them into three broad categories namely:(i)Reforms aimed at achie
36、ving fiscal discipline(fiscal reforms);(ii)reforms aimed at reducing the role of government in the local economy(domestic market-oriented reforms),and(iii)reforms aimed at achieving greater economic openness to trade and investment(openness reforms).Our results indicate that during the initial refor
37、m years,economic performance was worse for reform adopters,with average per capita real GDP growth declining in the 1980s and 1990s.In contrast,non-reform adopters experienced positive growth over this period,consistent with the earlier literature showing that the reforms failed to bring about short
38、-run economic growth.Between 2000 and 2019,average per capita GDP growth was higher than during the 1980s and 1990s for both reformers and non-reformers.However,the increase in growth was even higher for reform adopters.When we examine these comparative statistics by reform category,the difference i
39、n performance between reformers and non-reforms is largely driven by adoption of fiscal and domestic market-oriented reforms.We explore the role of alternative explanations,specifically,the increase in commodity prices and the effect of debt relief on economic performance for several countries in th
40、e 2000s.We find that the post-2000 per capita GDP growth was higher for non-commodity dependent countries compared with commodity dependent countries.Additionally,among the commodity-dependent countries,the per capita GDP growth was higher for reformers compared with non-reformers.For debt relief,co
41、untries that benefited from debt forgiveness experienced higher per capita GDP growth compared with countries that did not.Among the countries that benefited from debt relief,reformers generally experienced a higher per capita GDP growth.While it is difficult to draw definitive conclusions from the
42、simple analyses in this study,the result point to a reversal of the economic fortunes of reform adopters in the last two decades following their initial dismal economic performance during the 1980s and 1990s.To enrich the aggregate analysis,we conduct four case studies for Ethiopia,Nigeria,Uganda,an
43、d Senegal,which allow for a more granular and nuanced assessment of the effect of the reforms.Overall,the case studies support the aggregate findings and reveal some useful lessons on the correlates of successful reform implementation.A stable government and socio-political environment with a focus
44、on pro-poor policies was an essential ingredient in implementing successful reforms.Crucially,concurrent efforts to minimize the potential negative welfare impacts of macroeconomic reforms on domestic populations are important to increase needed public support for reforms.The rest of the paper is or
45、ganized as follows.Section 2 provides a detailed review of Washington Consensus reform policies.Section 3 presents a comprehensive assessment of the reforms including their adoption trends across sub-Saharan Africa and conducts a comparative analysis of the economic growth patterns between reform ad
46、opters and non-adopters.Section 4 explores alternative explanations for the improved growth performance of the past two decades.Section 5 examines the reform experiences of four different countries.Section 6 concludes.Africa Growth Initiative at Brookings 5 2.Washington consensus policies and struct
47、ural adjustment programs A first step to understand the economic effects of Washington Consensus policy adoption is to examine the proposed reforms and the drivers of policy adoption across African countries.Washington Consensus reforms,as outlined in Serra and Stiglitz(2008),included the following
48、10 policy recommendations:“Fiscal discipline”“Fiscal discipline”focused on ensuring countries had relatively low primary fiscal deficits to avoid balance of payment crises and high inflation;“Reordering public expenditure priorities”“Reordering public expenditure priorities”encouraged elimination of
49、 subsidies and increased expenditure on pro-poor programs,including health care,education and infrastructure;“Tax reforms”“Tax reforms”emphasized the need for a broad-based tax base with moderate marginal tax rates;“Interest rate liberalization”“Interest rate liberalization”aimed at promoting market
50、-determined interest rates and achieving positive real interest rates;“Competitive exc“Competitive exchange rates”hange rates”to correct overvalued exchange rates;“Trade liberalization”“Trade liberalization”to allow more openness to trade with varying views on the pace at which to proceed;“Liberaliz