The British Council: Economics, Finance and Management

Development priorities: guidelines
Economic liberalization

Introduction

A number of different terms are used to describe policy objectives in this field. Some of them are more value loaded than others. Whatever terms are used, the broad objectives are to make the market economy more effective and efficient by deregulating industry and commerce, freeing market controls and correcting market distortions such as widespread subsidies. It involves redefining the role of government and the relationship between the state and the market.

The principal terms which will be found in documents describing policy or activity relating to this field are ‘economic liberalization’ and ‘enhancing productive capacity’ or ‘economic reform’ and ‘longer term economic growth’. The DfID now uses economic liberalization and we have followed this terminology.

The DfID has developed guidelines for scoring proposals to check whether they conform to policy in this field. The guidelines state that, Economic liberalization concerns programme and sector aid that promotes policy and institutional change designed to free internal and external markets for goods and services; improves the efficient operation of markets; corrects market distortions; restructures enterprises and institutions in the public sector; and strengthens public revenue and expenditure planning and management.

The principal features of policy in this field are frequently related to World Bank and IMF policies developed to support economic stabilization policies and structural adjustment programmes (SAPs). Although they may be defined slightly differently in different circumstances the main features are to:

The DfID and other bilateral aid agencies frequently work in support of the World Bank/IMF SAPs which include the above features. There is an increasing measure of co-ordination by aid and funding agencies in imposing conditional access to funds depending on agreement to and evidence of commitment by recipient countries to these policy features.

It must be said that, at the time of writing, there are few examples of successful SAPs which have fully transformed economies as they intended. The model most often cited is Ghana which adopted IMF-backed reform in 1983. Ten years on, the economy has finally begun to grow faster than the population, yet private investment, which is regarded as a critical test of success, is only trickling in.

SAPs often involve painful period of transition for large sections of the population. They need political will behind them if they are to achieve their goals. To quote Kwesi Botchwey, the long-standing Minister of State for Finance and Economic Planning in Ghana, Deregulating an economy requires a comprehensive macro-economic programme and policy framework. Moreover, its objectives must be properly explained and debated widely so as to build the necessary political consensus.

Consideration is now sometimes given to the provision of social safety nets in order to ameliorate the harsher effects of economic reform and to make the process more politically acceptable.

It is a feature of work in this area that aid is sometimes targeted at the private sector in addition to government institutions.

Current thinking amongst donor agencies, and particularly in the DfID, concerns effective resource mobilization. The aim is to reduce aid dependency by developing competence in ministries of finance and others concerned with effective financial management and in making effective use of internal resources by increasing the efficiency of tax collection.

Key Institutions in the economy and target groups.

It may be useful to divide this section into two areas in order more easily to identify key institutions and target groups. They are:

Opinion formers and policy makers

Implementation agencies

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