Anyone who tracks closely the evolution of economies throughout the world knows clearly that there would always be periods of strong growth and times of recession. The reasoning is simple. Economies are comprised of complex sets of relationships that extend across various sectors including the government, private or business sector, the financial sector, the productive or real sector and the external sector.
Developments in one sector usually affect other sectors and that simple reality makes the task of economic management an extremely challenging undertaking.
Therefore, even if a country is experiencing strong economic growth rates at the moment, there is no guarantee that it will continue on that trajectory for anysustained period of time. And that realisation can certainly be demonstrated more easily in the case of small economies with very limited resources.
For example, a strong earthquake or hurricane or even a global recession can quickly reverse the economic fortunes of a country and put it in a position that requires years before it can return to its growth path.
No government can prevent such undesirable effects on its economy.
But, a government that is serious about its economic management would recognise that such things can and do happen and hence some emergency funds should be reserved as a mechanism to assist the country in responding to this kind of adversity.
At the micro level, economic management requires adjustment to policies, plans and programmes when signs of economic distress emerge.
I am focusing on government’s response simply because public policies tend to affect everyone and everything in the economy in a more profound manner than developments in other sectors do. That said it is also critical to note that the other key sectors also have to play their roles in the economic management of the country.
When circumstances change, we should rightly expect the private sector, the financial sector, and the productive sectors to make meaningful adjustments to the way they do business in order to assist in keeping the ship of state afloat.
Returning to the government, from time to time economic data is released on the performance of the economy as it relates to growth, unemployment, inflation, public debt, the fiscal deficit, and the balance of payments. As expected, these macroeconomic aggregates would move up or down from one period to another. A one-off increase or decrease in any of these important aggregates does not by itself present major cause for concern.
However, changes over time would establish a trend and that trend should signal time for action on the part of government. And that is essentially what economic management should be all about.
In short, therefore, governments ought to continuously monitor the movements in the key macroeconomic variables and implement policies to reverse trends that have the potential to create economic difficulties. The problem we in the Caribbean have had over many years is that our governments continue to fail to act when signs of economic distress emerge and the net effect is that economic conditions deteriorate even further. At that point, extremely tough measures have to be implemented to resolve the problems and the economic pain continues for much longer than otherwise should be the case.
In essence, then, even though economic management can be quite challenging, we can do a much more effective job in that regard by simply getting down to basics: fix problems as they emerge rather than allowing the situation to deteriorate to the extent that would require rather difficult remedies!
(Dr. Brian Francis, the former Permanent Secretary in the local Ministry of Finance, is a Lecturer in the Department of Economics at the Cave Hill Campus in Bridgetown, Barbados of the University of the West Indies)