This paper applies the work of Berg and Ostry (2011) to the SACU region, to identify how inequalities have played a role in growth in each of these countries, and elaborates policy options to mitigate the effects of inequalities and foster growth. Lower income inequalities could lead to significant gains, as SACU countries could almost double the duration of their growth periods, with much lower inequalities. While reducing inequalities may be desirable, the design of policies to achieve such objective is not trivial. Policies targeting income inequalities at the sources are expected to be the most effective to reduce inequalities and promote growth. However, direct redistribution, if carefully crafted can also be very effective in reducing inequalities while limiting its potentially negative impact on growth.
Botswana, Lesotho, Namibia, and Swaziland face the serious challenge of adjusting not only to lower Southern Africa Customs Union (SACU) transfers because of the global economic crisis, but also to a potential further decline over the medium term. This paper assesses options for the design of the needed fiscal consolidation. The choice among these options should be driven by (i) the impact on growth and (ii) the specificities of each country. Overall, a focus on government consumption cuts appears to minimize the negative impact on growth, and would be appropriate given the relatively large size of the public sector in each country. JEL Classification Numbers: C63, E62, H60
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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