Quote of the Day- IMF on Sri Lanka program

Did they meet the targets;

So we think that the target was met, but we can't confirm that, and that is why the government has formally asked the Board to not consider that criterion in deciding on this review. It's essentially like a technicality.

Visualization of the Day

A Graphical Overview of the 2012 Republican Field

Evolution of Household Durables in Egypt

Poverty is widespread in Egypt, affecting 40 percent of the population, and there are deep pockets of poverty. The 40 percent overall poverty rate in 2005 represents 28 million people, of which 13.6 million (19.6 of population) are in absolute poverty, and even more, 14.5 million (21.0 percent), are near-poor. Furthermore, 2.6 million of the poor (3.8 percent of population) are extremely poor (see Table 1, panels A and B). Many people are also concentrated around the poverty line, meaning that a miniscule decline in monthly consumption of just LE 4 will make additional 2.3 percent of the population poor. By the same token, concentration of the poor around the poverty line means that even a small income boost can move more than 2 percent of the population out of poverty

via Egypt Poverty Assessment Update- World Bank

Egypt - Binding Constraints to Growth

The foregoing review of the literature and relevant facts on constraints to growth in Egypt suggests a short list of prime suspects that may deserve deeper investigation(Figure 10). Access to financing, notably, does not appear to be the main recent or current obstacle to growth; real interest rates would be much higher and the external current account under greater pressure if indeed businesses were strongly competing for funding of an abundance of profitable investment ideas. At the same time, there is a question of whether the limited available data really tell the full story: business complaints about lack of access to financing may reflect some nonprice rationing of credit, especially through the state banks, and access to finance for small enterprises and farmers may constitute a binding growth constraint for that sector. The latter would reflect the inefficiency of the financial system in allocating savings to domestic investments rather than lack of domestic or foreign savings, but also capacity constraints on borrowers. The ongoing reform of the financial sector (which by late 2006 had shifted more than half of the banking sector to private ownership, along with governance reform at the remaining state banks and more generally a modernization and liberalization of financial institutions) thus tackles a constraint that would probably become binding soon. But ongoing growth and rising investments may also move the economy, in the near future, to a point where low national savings (reflecting high public dissavings) constitute a critical constraint, unless access to foreign savings (notably higher FDI dedicated to greenfield investments rather than one-off privatizations) could be durably expanded.

32. There is considerable evidence, including surveys and comparative rankings, as well as Egypt’s difficulty in moving toward new higher value-added products, pointing to appropriability of returns as a critical constraint. Private returns are reduced through the high cost imposed by complex regulations and inefficient government services, but perhaps also through the high cost of experimenting and exploring new production ideas. Recent bold reforms have focused on this area, particularly in the tax system and trade regulations, and the concomitant pick-up in growth is consistent with the view that these reforms have been addressing critical constraints. By contrast, a dearth of complementary factors does not appear among the prime suspects of having held up growth—though, again, there is little doubt that over the longer run, and as sophistication in the economy increases, Egypt will need to bolster its human capital if it wants to continue growing.

33. The authorities have started to tackle the high fiscal deficit with a view to halving it to around 4 percent of GDP by 2010, and thus bringing public debt onto a declining trajectory. As indicated above, implementing this plan would help forestall potential debt overhang effects, contribute to greater efficiency of financial intermediation, and help raise national savings—all potential, if not actual, constraints on growth.

34. Overall, the Egyptian reforms launched in 2004 appear remarkably apt at focusing on the most critical constraints and thus maximizing the growth effect out of a limited set of reforms. Since removing the most critical constraint is likely to give both the fastest and the biggest “bang for the buck,” the strategy might also have been the politically most feasible approach, maximizing the return on political capital which, for any government, is always limited. Further reforms aimed at easing the cost of regulations will likely continue to have high payoffs. Increasingly, however, reforms with different political economy characteristics, such as revamping education or reigning in the fiscal deficit, will become the critical challenge. Since these steps take more time (for design, political consensus building, implementation, and pay-off) the authorities are well advised to use the tailwinds generated by the recent reforms to start tackling these more distant constraints. This would reduce the risk that the recent growth episode will become another tale of a growth spurt that fizzled out because some deeper constraints were not addressed.

35. As the various reforms unleash entrepreneurial spirit and investment in Egypt, more attention may also have to be paid to potential pitfalls highlighted by the “Theory of Second Best.” For example, with energy highly subsidized, and energy prices in Egypt among the lowest in the world, lifting financing constraints or raising private returns on investment may trigger higher investment in energy-intensive activities that may not optimize social returns. As highlighted at the beginning, there may be no escaping the fact that, while a few simple bold measures can work wonders for a while, sustaining growth will require reforms along many dimensions and paying attention to the complex interaction among them

-Egypt--Searching for Binding Constraints on Growth

The Great Stagnation in Brief

From The Economist blog;

Mr Cowen's book can be very briefly (too briefly) summarised as follows. The rich world faces two problems. The first is that a decline in innovation has reduced the growth rate of output and median incomes, making it hard for rich countries to meat obligations accepted when expectations were higher. The second is that a lot of recent innovation is occuring in places like the internet, where new products are cheap or free and create very few jobs.

This is Tyler Cowen himself summarising the major theme of the book;

Beyond the income slowdown, there is a further worry: an increasing share of the economy consists of education and health care. That trend is not necessarily bad, but in these two areas, results are often hard to measure. If health care costs rise 6 percent in a year, for example, that counts as higher G.D.P., but how much is our health actually improving? It’s an open question. America spends more on health care than other countries, but those expenditures don’t seem to produce uniformly superior results. And while there have certainly been gains in medical treatment, we may be overvaluing them. In education, we are spending more each year, but test scores have stagnated for decades, graduation rates are down and America’s worst schools are disasters.

There is an even broader problem. When it comes to measuring national income, we’re generally valuing expenditures at cost, rather than tracking productivity in terms of results. In other words, our statistics may be deceiving us — by accepting, say, our health care and educational expenditures at face value. This theme has been emphasized by the PayPal co-founder Peter Thiel in his public talks and by the economist Michael Mandel in his writings...

Science should be encouraged with subsidies for basic research, as well as private charity, educational reform, a business culture geared toward commercializing inventions, and greater public appreciation for the scientific endeavor. A lighter legal and regulatory hand could ease the path of future innovations.

Middle East Fact of the Day- A message to Dictators and Politicians

Changes in citizens’ perceived well-being merit close attention as they provide clear messages to government which may not be obvious using traditional measures of progress.

Wellbeing in Egypt and Tunisia decreased significantly over the past few years, even as GDP increased. In Egypt, where demonstrations have prompted President Hosni Mubarak to give up power after elections this fall, the percentage of people "thriving" fell by 18 percentage points since 2005. In Tunisia, where mass protests toppled the country's government last month, the percentage of people Gallup classifies as thriving fell 10 points since 2008

Related:
Understanding How Gallup Uses the Cantril Scale

The Cantril Self-Anchoring Scale, developed by pioneering social researcher Dr. Hadley Cantril, consists of the following:
Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top.
The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you.
On which step of the ladder would you say you personally feel you stand at this time? (ladder-present)
On which step do you think you will stand about five years from now? (ladder-future)

Economic History Chart of the Day- Roman Empire

via Brad Delong

Related:
Edict of Diocletian /, Robert Allen,