Structural Reforms to Accelerate Growth, Ease Policy Trade-offs, and Support the Green Transition in Emerging Market and Developing Economies

Nina Budina, Christian Ebeke, Florence Jaumotte (), Andrea Medici, Augustus Panton, Marina Tavares and Bella Yao

No 2023/007, IMF Staff Discussion Notes from International Monetary Fund

Abstract: In the aftermath of the COVID-19 pandemic, emerging market and developing economies are grappling with economic scarring, social tension, and reduced policy space. Policy actions are already urgently needed to boost growth in the near term and support the ongoing green transition. At the same time, high public debt and persistently high inflation have constrained policy space, posing difficult policy trade-offs. This Staff Discussion Note focuses on emerging market and developing economies and proposes a framework for prioritization, packaging, and sequencing of macrostructural reforms to accelerate growth, alleviate policy trade-offs, and support the green transition. The note shows that prioritizing the removal of the most binding constraints on economic activity, bundling reforms (governance, business deregulation, and external sector reforms), and appropriate sequencing of other reforms (such as labor market and credit sector reforms) can help front-load reform gains. In emerging market and developing economies with large initial structural gaps, the estimated output effects of such a major reform package are sizable—about 4 percent in two years and 8 percent in four years. Achieving higher growth and lower absolute carbon emissions over time requires a well-designed strategy that includes both macrostructural and green reforms.

Keywords: policy trade-off; climate policy stringency; policy space; policy action; developing economy; Emerging and frontier financial markets; Structural reforms; Climate policy; Greenhouse gas emissions; Global; Caribbean (search for similar items in EconPapers)
Pages: 48
Date: 2023-09-22
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