Practise interpreting development indicators, explaining constraints and evaluating market, interventionist and institutional strategies in developing economies.
The table shows selected economic data in 2021 for Chile and Uruguay.
Literacy rates must be higher in Uruguay than in Chile
Uruguay is less economically developed than Chile
Average incomes are higher in Uruguay than in Chile
Uruguay has better provision of healthcare than Chile
India has experienced a significant increase in its economic development since 2002.
Which one of the following is likely to have caused the increase in India's economic development?
An increase in the proportion of people with access to the internet per thousand of population
A decrease in the proportion of people with access to mobile phones per thousand of population
An increase in terrorism and civil wars
A decrease in life expectancy at birth
Sources for use with Section B
The economy of Pakistan
Figure 1 National debt, $ billions, 2018–2022
Figure 2 Rupee–US dollar exchange rate, January 2022 to June 2022
Extract A Economic outlook Between January and June 2022 Pakistan’s currency, the rupee, depreciated against the US dollar. This was mainly as a result of rising global inflation rates and the strong appreciation of the US dollar. However, economists expected the external value of the rupee to increase against the US dollar in the third quarter of 2022. They anticipated 5 that the dollars earned by Pakistan from its exports would be greater than the dollars paid for its imports and debt servicing. Pakistan experienced a significant decline in foreign currency reserves from $16 billion in June 2021 to $10 billion in June 2022. Many economists believed that the economy could be on the verge of an economic collapse in the third quarter of 10 2022. In June 2022, Pakistan’s central bank, the State Bank of Pakistan (SBP), informed Pakistan’s Government that the country’s rising foreign currency gap would have a negative impact on its ability to import. The SBP claimed that the rising foreign currency gap was likely to increase further because of higher debt servicing 15 payments. To prevent these reserves from running out, the SBP suggested a temporary ban on the import of non‑essential goods. Pakistan’s Government borrowed $1.2 billion from the IMF to prevent a further fall in foreign currency reserves. This financial support enabled the Government to reduce its current account deficit of the balance of payments and to help finance the 20 country’s national debt. The loan from the IMF required the Government of Pakistan to meet certain conditions. These included a reduction in the fiscal deficit, partly by the removal of fuel and energy subsidies. The IMF also required Pakistan’s central bank to raise its base rate of interest to stabilise the rupee. 25 Previous governments of Pakistan have not always met the terms of their loan agreements with the IMF. For example, the fiscal deficit has not been reduced significantly because the government collects very little revenue from direct taxes, especially from the booming property market. Large houses cost anywhere between $500 000 and $2 million to purchase but the owners only pay a small proportion as 30 tax. The IMF proposed that high‑income households should pay significantly more income tax than low‑income and middle‑income households.
Explain what is meant by a 'foreign currency gap' (Extract A, line 13).
With reference to Extract A, analyse two roles of the IMF.
Sources for use with Section B
The economy of Pakistan
Figure 1 National debt, $ billions, 2018–2022
Figure 2 Rupee–US dollar exchange rate, January 2022 to June 2022
Extract A Economic outlook Between January and June 2022 Pakistan’s currency, the rupee, depreciated against the US dollar. This was mainly as a result of rising global inflation rates and the strong appreciation of the US dollar. However, economists expected the external value of the rupee to increase against the US dollar in the third quarter of 2022. They anticipated 5 that the dollars earned by Pakistan from its exports would be greater than the dollars paid for its imports and debt servicing. Pakistan experienced a significant decline in foreign currency reserves from $16 billion in June 2021 to $10 billion in June 2022. Many economists believed that the economy could be on the verge of an economic collapse in the third quarter of 10 2022. In June 2022, Pakistan’s central bank, the State Bank of Pakistan (SBP), informed Pakistan’s Government that the country’s rising foreign currency gap would have a negative impact on its ability to import. The SBP claimed that the rising foreign currency gap was likely to increase further because of higher debt servicing 15 payments. To prevent these reserves from running out, the SBP suggested a temporary ban on the import of non‑essential goods. Pakistan’s Government borrowed $1.2 billion from the IMF to prevent a further fall in foreign currency reserves. This financial support enabled the Government to reduce its current account deficit of the balance of payments and to help finance the 20 country’s national debt. The loan from the IMF required the Government of Pakistan to meet certain conditions. These included a reduction in the fiscal deficit, partly by the removal of fuel and energy subsidies. The IMF also required Pakistan’s central bank to raise its base rate of interest to stabilise the rupee. 25 Previous governments of Pakistan have not always met the terms of their loan agreements with the IMF. For example, the fiscal deficit has not been reduced significantly because the government collects very little revenue from direct taxes, especially from the booming property market. Large houses cost anywhere between $500 000 and $2 million to purchase but the owners only pay a small proportion as 30 tax. The IMF proposed that high‑income households should pay significantly more income tax than low‑income and middle‑income households.
Explain what is meant by a 'foreign currency gap' (Extract A, line 13).
Which one of the following is a non-economic factor that might constrain the rate of economic growth and economic development of a country?
A poorly educated workforce
Volatile commodity prices
Capital flight
High levels of corruption
Sources for use with Section B
The Indonesian economy
Figure 1 Monthly balance of trade in goods and services, $ billion, January 2019 to December 2022
Extract A Economic outlook In 2022 Indonesia had a population of 276 million people. This was the largest in Southeast Asia and had increased by 26 million since 2012. In 2022 the global economy was weak and many countries experienced high rates of inflation. By contrast, Indonesia’s economy performed better than several advanced economies. The country’s real GDP 5 increased by 5.3%. This was above the forecast rate of economic growth. Its annual rate of inflation of 4.6% was one of the lowest globally. However, this was before the Government removed subsidies on oil and fuel. Indonesia is a net importer of oil. During 2022 Indonesia’s currency, the rupiah, had the best-performing floating exchange rate to the US dollar in Asia. The rupiah depreciated less than the currencies of Vietnam 10 and China, its main trading partners. Indonesia is a resource-rich country and it is a net exporter of commodities such as nickel, coal, rubber and palm oil. In 2022 the country benefited from rising global commodity prices. It is the world’s largest producer of nickel, an important component in electric vehicle batteries. 15 To take advantage of the rising global demand for electric vehicles, the Government announced plans to increase privatisation and promote foreign direct investment (FDI). Exports from the manufacturing sector increased during 2022. These included electronics, machinery, textiles and garments. The Government relaxed its previously strict employment regulations to create more jobs, fill vacancies and promote innovation. 20 This encouraged more FDI, as many foreign producers shifted manufacturing away from China. In 2022 Indonesia’s exports of commodities made a more significant contribution to the country’s current account surplus and to its economic growth rate than its exports of manufactured goods. The country’s current account surplus increased from $3.5 billion in 25 2021 to $13.2 billion in 2022. It was forecast that advanced economies would experience lower rates of economic growth in 2023. This would result in a fall in demand for Indonesia’s commodities. In 2023 it was forecast that Indonesia’s rate of inflation would increase to 5.5% partly as a result of the removal of fuel subsidies. The country’s central bank could respond to the 30 rising rate of inflation by increasing its base rate of interest. There are concerns about the level of corruption in the country. Indonesia scored 38 out of 100 on the corruption index – the lower the score, the greater the level of corruption. This is the same score as Brazil but lower than that of Vietnam and China. This indicates that Indonesia has relatively more corruption than Vietnam and China. 35 To remain internationally competitive, many economists have recommended that Indonesia should diversify away from its dependence on commodities. They have suggested that the Government must aim to develop the country’s human capital and infrastructure, in order to improve the labour mobility of its relatively young population.
With reference to Extract A and your own knowledge, discuss market-orientated strategies that the Indonesian Government might use to increase its rate of economic growth.
In Libya the HDI was 0.80 in 2010 and it was 0.72 in 2019.
Evaluate interventionist strategies that a government in a developing country of your choice might use to increase economic development.
In South Korea manufacturing as a share of GDP was 17% in 1969 and 25% in 2019.
Which one of the following theories suggests that industrialisation is a strategy to promote economic growth and development?
The Prebisch-Singer hypothesis
The Marshall-Lerner condition
The Harrod-Domar model
The Lewis structural dual-sector model
Sources for use with Section B
The economy of Pakistan
Figure 1 National debt, $ billions, 2018–2022
Figure 2 Rupee–US dollar exchange rate, January 2022 to June 2022
Extract A Economic outlook Between January and June 2022 Pakistan’s currency, the rupee, depreciated against the US dollar. This was mainly as a result of rising global inflation rates and the strong appreciation of the US dollar. However, economists expected the external value of the rupee to increase against the US dollar in the third quarter of 2022. They anticipated 5 that the dollars earned by Pakistan from its exports would be greater than the dollars paid for its imports and debt servicing. Pakistan experienced a significant decline in foreign currency reserves from $16 billion in June 2021 to $10 billion in June 2022. Many economists believed that the economy could be on the verge of an economic collapse in the third quarter of 10 2022. In June 2022, Pakistan’s central bank, the State Bank of Pakistan (SBP), informed Pakistan’s Government that the country’s rising foreign currency gap would have a negative impact on its ability to import. The SBP claimed that the rising foreign currency gap was likely to increase further because of higher debt servicing 15 payments. To prevent these reserves from running out, the SBP suggested a temporary ban on the import of non‑essential goods. Pakistan’s Government borrowed $1.2 billion from the IMF to prevent a further fall in foreign currency reserves. This financial support enabled the Government to reduce its current account deficit of the balance of payments and to help finance the 20 country’s national debt. The loan from the IMF required the Government of Pakistan to meet certain conditions. These included a reduction in the fiscal deficit, partly by the removal of fuel and energy subsidies. The IMF also required Pakistan’s central bank to raise its base rate of interest to stabilise the rupee. 25 Previous governments of Pakistan have not always met the terms of their loan agreements with the IMF. For example, the fiscal deficit has not been reduced significantly because the government collects very little revenue from direct taxes, especially from the booming property market. Large houses cost anywhere between $500 000 and $2 million to purchase but the owners only pay a small proportion as 30 tax. The IMF proposed that high‑income households should pay significantly more income tax than low‑income and middle‑income households.
With reference to Extract A, analyse two roles of the IMF.