Macroeconomics Assignment

Macroeconomics Assignment Words: 997

What macroeconomic policy prescriptions/strategies would you recommend for Belize in an effort to foster economic growth and development? One characteristic that developing countries’ economies share is vulnerability. Belize is small in size, prone to natural disasters and environmental fragility. Belize also has an open economy with a high trade-GAP ratio, but its export base is very narrow, dominated by primary products (bananas, sugar, citrus, etc. ) and natural resources.

Therefore, the Belize economy is subject to external disturbances from world goods and financial markets. As a result, the economy experience significant volatility in their economic growth. To enhance the volatility and external shocks the Belize government have introduced various macroeconomic policies to influence aggregate income, total employment (unemployment), economic growth (increase per capita GAP), wages, prices, interest rate and social development (poverty reduction). A macroeconomic policy does not only take into consideration finance but also social development.

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According to the World Commission on Environment and Development, sustainable development encompasses the assurance that changes “meets the needs of the present without compromising the ability of future generations to meet their own needs” (Borderland (1987, p. 8). In this regard, from past experience in the Belize context, it is known that the government has implemented at least three macroeconomic policies, namely: Fiscal Policies, Monetary Policies and Supply-Side Policies. In its purest form, Fiscal Policies refer to discretionary change in government expenditure and/or taxes in order to achieve certain economic goals.

In Belize, for example, the government has been committed n spending more in education and health so that the future generation can enjoy a higher standard of living and as a result stimulate economic activity. Fiscal policies, however, tend to also have a negative effect on the economy in what economists refer to as the “crowing out’ effect. When government engage in expansionary fiscal policies they certainly need to secure finance and in most cases comes in the form of borrowing and a rise of interest rates which has a tendency to cause a decrease in investment or consumption in the private sector.

Secondly, Monetary Policies has also been introduced in Belize in the past; these policies involve the control of the quantity of money in the economy. A recent example is the expansionary monetary policy which the Belize government introduced in the form of the (selling) super bond when the economy was in a recession. In this case, there was an injection of monies in the economy which caused interest rates to fall; a decrease in interest rates tends to stimulate investment and consumption which leads to a rise in real Gross Domestic Products.

Thirdly, Supply-Side Policies have also been implemented mainly through fiscal incentives which are aimed to attract investment and stimulate business formation. A good example here in the north is the fiscal incentive package given to the American Sugar Refining (CARS) when they bought over BBS; tax breaks and duty free exemptions on machinery were provided (Channel 5 Belize, date 2 October 2013). In addition, Supply-Side Policies can also include the provision of physical infrastructure, stable financial systems through the central bank regulation, and development of human capital to mention a few.

It is certain therefore that a particular policy has to be chosen based on the macroeconomic tuition a country is facing. Notwithstanding this fact, consideration should also be placed on macroeconomic policy packages being designed by the International Monitory Fund which focus entirely on either price stability or external balance. This paper argues that in order to prescribe a macroeconomic policy the Economic characteristics of Belize should be the guiding principle. The macroeconomic outlook for Belize is the following: According to the Central Bank of Belize (2014), the population in Belize accounts to approximately 347. Thousand with an unemployment rate of 11. 7 % in 2013. Notwithstanding the high unemployment rate, the GAP per capita (in APP $ terms) in 2013 was 9,288. 3 compared to 8,034. 3 in 2009 which reflects an upward slope. The Human Development Index for Belize also needs to be taken into consideration because it assesses the long-term progress of human development, namely: “a long and healthy life, access to knowledge and a decent standard of living” (UNDO, 2013, p. 1). According to UNDO (2013), Beeline’s HID value for the year 2012 was 0. 702 places the country in a medium human development category and is positioned at 96 out of 187 countries.

In 201 2, the life expectancy at birth was 76. 3 which seem positive given the fact that in 1980 the life expectancy was 70. 2. A great improvement has also been observed in the expected years of schooling whereby in 2012 it was 12. 5 while in 1980 it was 10. 7; the mean year of schooling for 2012, therefore, was 8. 0 in 2012. The Gross National Income per capita also increased by about 61 percent between 1 980 and 2012 (1980=3,309 and 2012=5,327 APP$). A very important fact being reported by the Central Bank of Belize is the inflation rate which was 0. In 201 3 compared to 6. In 2009. This indicates that price stability or low inflation may be necessary, but not a sufficient condition for sustained economic growth. With the above-mentioned macroeconomic outlook, it is notable that an expansionary Fiscal Policy needs to be put in place to address the issues with the HID, for example. It is certain that Belize needs to invest more in education at the primary level. The Government should invest in access to technology, up to date reading materials, train teachers and infrastructure development to mention a few.

In addition, the government should actively remote supply-side policies so as to attract foreign direct investment and encourage entrepreneurship so that the unemployment rate could be lowered. This would create a dynamic economy while at the same time creating job opportunities which could be a means for solving the crime situation that Belize currently face. In conclusion, there is a consensus that fiscal policy in developing countries with a weak revenue base tends to be prototypical. This means that governments’ revenue in developing countries depend excessively on trade taxes and foreign aid.

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