Abstract
We discuss deflation and the deflation targets as may be proposed by the financial institutions, the World Bank and the IMF. We also define trade liberalization. We also make notes about the problems that the countries, Guinea Bissau and Sierra Leone. We also discuss the supply –side economic policies as can be implemented by countries to improve or bring an economy that may be on a decline.
(i) Deflation is defined by economists as the persistent or continuous drop in the general price level of goods and services in a given economy. This also means the change in supply of money measured against the change in the size of the economy that leads to general changes in the prices. Deflation can be worse than inflation and if left without due attention, it can lead to recession and the worst case it can lead to a depression.
Deflation can be harmful to the economy and its investors including companies’ profits falling, when they start to sell cheaply. The companies begin to cut costs and end up reducing employment wages, laying off staff, and even closing the production plants as well. The consequence shall therefore be unemployment. The economy cannot therefore expand because the people will not be willing to spend as they will not be certain of the economic future.
In Africa, due to several bad policies or low levels of development, there intervention by the IMF and the World Bank from time to time to check and help in running the economies. Some of the strict deflationary targets therefore are to have the people get back the confidence to spend or increase in spending. The IMF and World Bank therefore help the governments in this region to carry out monetary and or fiscal policies. The monetary policies include cutting interest rates in the banks so that the people can be stimulated to resume demanding for money spending it and this can revamp the traffic of money in the economy. Whereas fiscal policies always involve increasing spending by the government , increasing public sector borrowing, and or lowering the direct taxes so that peoples’ incomes are boosted to spend.
Trade liberalization can be defined as the removal or in some cases the reduction by the government of practices that limit the free flow of goods and services across borders. This can be done suspending all tariffs and the non- tariff barriers to trade from one country to another. Some of these limitations are duties, surcharges, export subsidies, licensing regulations, quotas and any other standards that may be set arbitrarily. In a liberalized trade system, the prices are normally dictated by the forces in the market i.e. forces of demand and supply.
(b) Some of the problems faced Guinea Bissau and Sierra Leone as given by the chart are
Illiteracy. Illiteracy is very much related to societal ills like crime, poverty, welfare and other related social problems. Not to mention so much lost money that would be realized in productivity and tax if the illiterate population was to be working and earning. Illiterate people are as good as people with no skills even if they are working. They are limited in some skills which is an extra cost to the employer because they have to find and pay someone with the required skills. An illiterate population also suffers health problems because in most cases they cannot be able to read medical directions or the health literature printed on the medicine containers. This leads in most cases to a doctor doing more frequent room visits to the patients especially those suffering from chronic diseases and this is an increased cost to the government, which shows how illiteracy can be an impediment to an economic advancement of a given nation or family.
Reliance on agriculture for employment. There are issues associated with most of the people relying on agriculture. We should not that most of agriculture in Africa is not commercial (modern) so it is seasonal and for people taking it as primary income source, remain unemployed at end of season. Given that this sector relies on whether, it means that in case of bad weather, there is short fall and so there is poverty and hunger. We can also note that due to bad road network, it can be expensive to transport and in some cases to store the produce, the farmers end up selling cheaply and thereafter inviting poverty in periods off season. It is also important to note that because of over reliance on agriculture; these countries import the bulk of the rest of the goods and services, meaning they are perpetually posting an unfavorable balance of payment for the economy.
(c) Governments always strive to implement macroeconomic policies like attainment of price stability, economic growth, improvement or creation of more jobs, limiting budget deficits as well as trying to narrow the gap between the rich and the poor people in the economy.
Supply –side economic policies are those mainly designed to enable markets and the industries operate more efficiently so that they can ably contribute to an increased rate of real national output growth.
Some of the examples of the supply-side economic policies that accelerate the economic recovery or growth are; lowering personal income taxes and reduced taxes on income on savings so that the people have more to spend in their households, reduced government regulation of markets so that demand and supply are the main determinants of the economy. Other polices include privatization, reduction in corporate tax, reduction in transfer payments, lowering the minimum wage and also agreeing with labour unions to stop or delay their activities. All these are measures that can bring back the economy to its feet.
In fact many governments around the world are in belief that an improved supply-side performance is one of the key issues which can sustain economic growth without again causing rise in inflation. As recently as two years ago, the United states government through the American recovery and reinvestment act, introduced tax cuts for the low income earner and enabled the credit to small businesses create more jobs and buy equipments and to ordinary people to buy homes, cars and send children to college. This has created some more jobs of recent as the job losses in the United States have reduced.
The World Bank and the IMF also convinced many African countries to privatize companies and liberalize their economies. There is a marked growth of the GDP in many of the countries standing at levels of about 6%, a contrast to what obtained more than 10 years ago.
