G20 Economies Should Target Reforms to Boost Medium-Term Growth Prospects

The massive global pandemic currently haunting the economy is making many large economies in the world to struggle with much lower growth prospects in the years to come. The G20 economies suffer the most from slow growth, accounting for about 85% of the global GDP. Growth is going to decline over the next five years in these economies, falling significantly below the mean it experienced in the two decades before the pandemic. This poses a major challenge for all the G20 countries-including the newly invited African Union countries-in advanced economies and other emerging markets. The overarching challenge of the G20 and the African Union as well as in the European Union is indeed fostering the creation of strong, sustainable, balanced, and inclusive growth in medium terms that will turn into better outcomes for populations.

Add to this that the G20 only welcomed the African Union in 2020 as a new member. They must contend with growing a youthful population for a brighter economic growth forecast. Much of this is promising, but these states have a remarkable challenge to grapple because they are not adding more of their youth into the labor market. Despite the brighter forecast for many countries heading into more rigid and visible outputs among their population, much remains unsatisfactorily addressed. The obvious is a solution to engage the G20 and African Union, as well as the European Union, following through with what the African Union itself embraced the last few years-need for comprehensive structural reform to boost medium-term growth. These reforms hinge on the key to unlocking the potential by recourse to addressing core liabilities and prioritizing reforms leading to improvement in productivity, yield employment, and inclusivity.

The real problem is perhaps scarcity in innovation for productivity, a slackening trend in the maturation of productivity growth across many economies, combined with adverse demographic pressures involving aging populations in many of the developed economies. This constraining state has overall growth limitations for the economies and often leads to economic stagnation. The World Economic Outlook also uses high public debt levels, growing protectionism as well as geoeconomic fragmentation, to which long-term economic development of governments is undermined.

This needs structural reform to take place in a number of critical areas so that the medium-term growth prospects of G20 and African Union economies can be lifted. The first order is economic policy reforming itself under the fiscal frameworks, thus carrying along an effect with helping governments to sustainable and consolidated budgets. Ill-conceived austerity could end up crippling long-term growth initiatives, hence the emphasis on recalibrated fiscal balance to ensure government spending is sustainable while it also fosters growth. This clearly would mean stringent public expenditure limits for advanced economies and an emphasis on improving revenue generation in a number of key emerging market economies. The practical way to fiscal accountability and transparency is vital for many countries in the African Union.

The second area that requires urgent attention is improving the education system and skill development to equip the workforce with capabilities that match emerging opportunities in the job market. In both G20 and African countries, there exists a growing mismatch between the skills possessed by workers and the contents of the labor market. The mismatch can be corrected by making reforms in education and vocational training targeting improving labor market outcomes and enhancing productivity. There is also long-term social mobility through reduced inequalities and hence more inclusive growth by investing in education.

Third, the need to implement a green transition is very pressing for many economies in the G-20 and AU. Reforms that make the transition of the economy to a more sustainable state, including increasing the capacity of renewable energy and overcoming the efficiency of carbon taxes, can contribute not only to the reduction of global carbon emissions but also to stimulating more innovation and job creation as well as higher rates of investment. Many G20 and African Union countries need to redirect energy and other subsidies into green energy infrastructure and technologies and reduce fossil fuel subsidies. These reforms will bring their economic growth in line with the urgent climate mitigation needs, ensuring environmental conditionalities with long-term prosperity.

It is important that quite a few African Union countries should go through governance reform with the aim of reinforcing the rule of law, cleansing corruption, and improving public financial management. These three break into the basic requirements for making confidence from investors, allowing resources to be managed efficiently, and making an environment business-friendly that would enhance growth. Let alone without strong governance, even the endeavour to bring in fiscal management and green growth might as well be spoiled in the face of an imminent loss encompassing all the benefits of reforms.

Indeed, the medium-term challenges that await the G20 and the African Union economies in real terms include achieving strong, sustainable, and inclusive growth. Prioritizations in reforms made on fiscal policies, education, skills development, and green transition are ways to build more promising future horizons. Careful and structured sequencing and building strong social consensus will be crucial in the effectiveness of the reforms, with positive returns on investments over the next few years. These economies must now make substantial investments in the necessary structural change needed to meet the requirements of tomorrow.