Credibility of Economic Policy

Availability of Information

Ignorance breeds uncertainty.

An absence of information nurtures public uncertainty about government policy. If information is not available to monitor and verify economic policy, economic actors may believe that policy changes have occurred in cases where they actually have not. On the other hand, lack of an informed public can increase the incentive for government to change policy, since it may presume that such a policy deviation will not be detected. The net result is that economic policy becomes less credible.

Regular consultations between government officials and business leaders can help avoid misunderstandings and misinterpretations. Explaining policy publicly can help the public to understand the logic and rationality of policy. Policy that is well reasoned and clearly articulated is more credible. Moreover, when policy makers show a willingness to listen and respond to affected persons' concerns and questions, perceptions that policy will be feasible and appropriate are enhanced, and this in turn also enhances policy credibility.

African economies are vulnerable to price swings in a small number of primary commodities that make up a large share of their exports. Public information is particularly important for economies such as these. Given the volatile external economic environment, economic actors need to distinguish between economic effects brought about by changes in the external environment and economic effects brought about by changes in government policy. A lack of information about economic policy makes disentangling these effects more difficult. In particular, this uncertainty may be exploited by the government to exercise opportunistic policies inconsistent with announced policies. Economic agents, recognizing this logic, may attach less credibility to government policy announcements.

Policy Credibility Learning Module