Botswana’s mid-income trap

SHARE   |   Monday, 25 May 2015   |   By Kabelo Adamson

The success rate for middle-income countries to graduate to the high-income category is said to be low, with only 20 percent of those countries making it to the higher tier economic status.
Deputy Director, Monetary and Financial Stability at Bank of Botswana, Matthew Wright said on Monday that since 1960, about 51 percent of low-income countries have graduated to middle-income status but now find themselves trapped in that category even after decades in the middle-income bracket.
Speaking during the central bank economic briefing, Wright said reforms are needed to overcome the middle income trap as many countries have found it hard to move away from the group, but nonetheless gave his views on what should be done to avoid the “trap”.
He noted that in order to avoid staying in middle-income trap, the economic agenda must be inclusive but remain tightly focused. This includes financial inclusion which he said is a key element of inclusive growth.
Also, he said, institutions should continue to evolve and to find more ways of doings things and countries should avoid contradictory policy objectives.
Presenting under the topic, “enhancing macroeconomic linkages”, Wright observed that fiscal incentives are also important such that they are used as standard policy tool but cautioned that this should not obscure negative effects such as raising tax burden on others but should encourage lobbying.
When speaking about threats to macroeconomic stability and growth prospects, Wright said the nature of shocks has changed over time due to evolution of the structure of the economy and demographic characteristics of the population. He said threats are now in the areas of slow progress towards economic diversification, prospects for adequate employment creation and deficiencies in the supply of key inputs.

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