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This likely reflects the absence of financing constraints and discretionary increases in spending. In the oil-exporting countries and LICs, declines in revenues are expected to dominate. And in the fragile states, revenue declines are set to be modest. But with output, too, being impacted by the global crisis, it is also helpful to look at changes in fiscal variables that are not normalized by output.


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To this end the evolution of fiscal aggregates in real terms deflated by the GDP deflator and spending Figure 1. Sub-Saharan Africa: Government Revenues and as a share of revenues also considered. Expenditure, Change between and 0 With the onset of the crisis, fiscal revenues have been hit across the board, with oil -2 exporters being most affected.

On the spending side, the picture is even more interesting. Spending growth, Government revenues, on average, is set to decline in oil exporters excluding grants Government expenditure other than Nigeria relative to the levels of the previous five years. Nigeria, however, is expected to increase spending substantially Sub- Oil exporters Middle- Low-income Fragile this year—but the increase is mostly at the Saharan income countries states Africa countries central government level data at the general Source: IMF, African Department database.

According to this measure, the fiscal deficit has been increasing in recent years, from some 30 percent in to 40 percent in , but in it will decline to 32 percent of non-oil GDP. In the MICs, spending growth is set to increase in , reflecting, as noted, discretionary increases in spending. And in the rest of sub-Saharan Africa, spending growth is set to decline marginally. As for the ratio of central government primary spending in total revenues, during —08 sub-Saharan African countries on average spent about 90 percent of revenues including grants.

But in they are set to spend some percent of revenues, most likely through heavy recourse to borrowing. The swing is even more dramatic for the oil-exporting countries: from spending some 70 percent of revenues in — to spending percent of revenues in All in all, the picture that emerges is one of fiscal policy outcomes being driven by changes in revenues and, to a lesser extent, by spending.

At the same time, in many sub-Saharan African countries, spending growth in real terms is set to remain high relative to the recent past. Sub-Saharan Africa: Real Central Government Revenues and Expenditures, Average —08 and Projections —08 average projections percent change Real revenues, including grants While spillovers from the x In other developing economies—notably world economy are well established Box 1.

The database. GDP declined , , and For the rates, level of development, and export world as a whole, comparable figures are nearly structure Figure 1. The fall in the ratio of exports to GDP in A range of factors seem to lie behind the sub-Saharan Africa also seems likely to be much differences between the economic cycles of larger than in previous cycles. While these patterns sub-Saharan Africa and the rest of the world: are particularly pronounced among oil exporters, x In some cycles large sub-Saharan African they are evident throughout much of the region.

Policy responses were often external accounts were much healthier than in the inappropriate or constrained. Some past, which gave policymakers more room to countries tended to introduce trade maneuver Figure 1. At a similar point in past cycles, it had tended x Structural impediments, limited access to to be strongly negative. Between and international finance, and poorly , the balance is expected to shift into developed domestic markets may have deficit by about 5 percentage points of made sub-Saharan African economies GDP. In past global slowdowns deficits relatively inflexible, restricting their ability increased much more modestly because to recover from shocks, external or output fell less, but also because initial domestic.

High levels of heavily on commodity cycles. Oil exporters in outstanding debt were also sometimes a particular tended to experience short periods of factor. After their that, while government revenues have exports fell, they suffered a long period of declined across the board, several MICs stagnation. Part of the problem was boom-and- and LICs have been able to pursue bust domestic policies, which extended the peak countercyclical fiscal policies as a shock of the cycle through high public outlays and absorber—something rarely seen in past subsidized private spending and then forced the slowdowns.

MICs with flexible accumulated during the commodity boom as well exchange regimes in particular are letting as permitting some exchange rate adjustment. Oil exporters have been able ample buffer zone. Reflecting limited data availability, the fiscal balance and external current account as shares of GDP are averaged across corresponding years of the last seven years of the time periods centered on and For one thing, producers, many LICs will remain heavily South Africa and many frontier markets have dependent on external assistance and private already positioned themselves to sustain domestic inflows, including remittances, that are themselves demand, and oil exporters, including Nigeria, have vulnerable to global uncertainties.

Domestic seen some rebound in revenues and have capacity demand may also be restrained by the limited to expand output. Second, increased openness to availability of social safety nets to mitigate the trade and foreign capital once financial markets long-term impact of the downturn on the poor. On the other hand, the rising world demand, while near-term domestic high growth rates achieved by sub-Saharan policies can remain directed toward supporting African countries in the mids indicate the growth bolstered by more robust fiscal positions possibility of significant upside potential.

The important and lingering consequences for both outlook is now slightly more favorable than a few the nonincome and income dimensions of months ago because of better prospects in major poverty. A major concern is further delay in the trading partners. For oil importers, projected improvements in public services that will be growth rates in are similar to those of the essential if countries are to move toward the mids.

Millennium Development Goals: national and local budgets will continue to be stretched, and aid The relatively subdued external environment is pledges may not be fully realized. A deterioration likely to restrain global inflationary pressures, in health and education outcomes now will have a although deflation is no longer considered much dampening effect on the growth prospects of of a risk.

For countries in sub-Saharan Africa poor and middle-income countries long after the where inflation surged in after hikes in food first-round effects of the crisis have subsided. Only a handful of countries are expected rebound in growth is that average per expected to experience double-digit inflation in capita incomes should escape the sustained For some of the population, however, living standards Past performance points to clear risks to growth may deteriorate markedly, and there may be acute given continuing uncertainty about the global increases in poverty.

In particular, migrant economy. The economy is particularly that began earlier in the decade. Africa and weak export demand, particularly for Figure 1. In contrast, buoyancy in some Change in net exports successful reformers and oil producers will 12 Change in domestic demand produce some very strong individual outcomes in 10 Change in real GDP eastern and western Africa. Percentage points of GDP 8 The resumption of global growth will strengthen 6 the fiscal position of oil exporters, and that of 4 some other commodity exporters, but will not 2 significantly ease the financing pressures facing 0 most oil importers.

In the latter group of -2 countries, GDP growth rates are unlikely to be high enough to substantially reverse the loss in tax -4 payments resulting from the downturn and the Sources: IMF, World Economic Outlook; and IMF, African Department higher spending that many are planning to offset database. Oil exporters, on the other hand, continue to sustain fiscal deficits many of which experienced a significant decline in excluding grants of 5—7 percent of the current account surplus as a share of GDP in GDP.

Sub-Saharan Africa: Macroeconomic and Political Environment, — The improved macroeconomic environment, as exemplified by lower inflation Nevertheless, it should be noted that A fundamental question about the sustainability of output projections around the turning point of the fiscal and external outlook is how permanent a a global cycle are especially uncertain.

The Figure 1. Sub-Saharan Africa: Exports WEO projections for world trade imply a by Destination1 significant loss of potential markets for sub- Saharan Africa, with direct consequences for To the rest of the world To China productive capacity. Similarly, lower remittances To Africa and continued financial retrenchment could have a To euro area To advanced economies other than euro area Billions of U.

Sub-Saharan Africa: Growth Prospects, important for economic growth—better —11 political governance, reduced 8 macroeconomic imbalances, openness to Real GDP Growth 7 trade, etc. Even if 6 the latter becomes less supportive, there 5 should still be a relatively forceful impetus 4 Percent to growth from the much-improved 3 domestic economic environment.

Confidence intervals 2 50 percent 70 percent 1 x Some export markets may prove resilient. Even so, current projections are that it will take until for demand for African exports to return to precrisis levels.

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In particular, the growth in non-oil in international financial markets. Many banks imports has come to a halt in most countries, a disproportionate number in some countries compared to increases of nearly 20 percent on have foreign parents, and trade finance, cross- average in recent years. This mainly reflects slower border banking transactions, and direct and economic activity, but there have also been some portfolio capital flows are fragile.

These exchange rate depreciations and possibly even vulnerabilities could compound problems arising financing constraints in some instances. This recovery that dampens commodity demand could was particularly true after the oil price—related repress output growth and exacerbate fiscal and shocks of the early s and s. As their external deficits, limiting the scope for a balance of payments positions came under strain, supportive policy response. Sub-Saharan Africa: Policy The great recession has dramatically altered the Responses, policy landscape. A year or so ago most net food and oil importers in sub-Saharan Africa were 90 Fiscal Policy grappling for a response to the spike in food and vs.

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Consequently, and given vs. Three-fourths of 40 sub-Saharan African countries are expected to 30 increase their fiscal deficits excluding grants, or to 20 decrease their projected surplus, in , and two- 10 thirds have lowered one or more policy interest 0 Tightened Maintained Eased rates since the crisis began.

And while this regional Liberia Angola average masks a great deal of variation, —07 vs. Seychelles 0 x By and large, it also appears that countries with relatively larger output gaps have 5 Eritrea tended to adopt a more countercyclical 10 fiscal policy stance, subject to financing 2 1 0 -1 -2 -3 -4 -5 constraints, as indicated by the Output gap, projections relationship between the use of fiscal Source: IMF, African Department database.

Potential GDP is calculated using a Hodrick-Prescott filter on a panel data set of real GDP, from through In all, it is still too early to conclude that this time IMF staff maintain this particularly on vulnerable groups. But allowing the recommendation for countries where output is fiscal stance to become overly expansionary raises expected to be significantly below potential and the risk of further dampening growth prospects.

In these cases, the focus There is a strong case for monetary policy to of fiscal policy should be on facilitating recovery. In fact, there are only five countries excluding Zimbabwe As the recovery in these countries gains where inflation is above 15 percent. In momentum, however, fiscal policy emphasis will franc zone countries, as is customary, need to shift from stabilization to the traditional inflation is well under 5 percent.

Forward-looking indicators of debt x While monetary policy has been eased in sustainability have generally worsened since the many sub-Saharan African countries, this onset of the global recession because of its easing has usually been relatively modest. Beyond a pickup in capital inflows Figure 1. Sub-Saharan Africa: Bilateral Exchange improving the quality and efficiency of Rate in Selected Countries, September — government spending, expanding their tax bases, August and collecting more revenues to put public U.

Countries South Africa will therefore need to prepare to transition back to lower deficits and reinforce other supportive Botswana 95 Kenya policies, especially fiscal institutions and debt management strategies. These factors suggest that there is room to maintain an accommodative monetary stance for These considerations highlight the need to better some time yet. There are two exceptions to this, however.

First, High-frequency bank monitoring and stress in sub-Saharan African countries where inflation testing throughout sub-Saharan Africa should remains in double digits, is failing to decelerate, or ensure early detection of rising credit risks and is significantly above formal targets despite lower potential solvency and liquidity problems.

This growth and commodity prices, monetary and will be crucial to financial sector soundness, exchange rate policies need to be chosen with a because problems in even one bank can quickly view to bringing inflation closer to medium-term spread throughout the system. Countries with low objectives. Second, where countries operate under bank capital adequacy ratios are particularly fixed exchange rate regimes, in particular in the vulnerable.

Ensuring that all financial institutions franc zone countries, any steps to relax monetary are adequately and appropriately supervised is of conditions would have to be consistent with the particular importance in emerging and frontier exchange rate peg and avoid an undue decline in markets. Contingency plans should include international reserves. A stable and competitive real exchange rate can be a Role of the IMF facilitating condition for growth. But prolonged Consistent with its mandate, the IMF has and severe misalignments—either undervaluation responded quickly to requests from member or overvaluation—can be devastating for long-run countries and sharply scaled up its financial growth.

For the real exchange rate to offset assistance to sub-Saharan Africa. The decision to make to come from supportive measures, such as fiscal significant additional concessional resources policy and structural reforms that encourage price available will allow the IMF to remain heavily flexibility and promote productivity growth. It is unclear, however, whether demand for IMF resources will remain as Sub-Saharan African countries have so far high. First, recourse to IMF financing depends on generally escaped disruptions in financial sectors, the balance countries choose to strike between but banks in a number of countries have come adjustment and financing.

And even if IMF under pressure, and many remain vulnerable to members were to tilt more toward financing, they the downturn in economic activity. Credit growth might first use international reserves, which in in recent years in sub-Saharan Africa has been most countries are at relatively healthy levels. One approach to answering this question is to estimate a dynamic panel model for sub-Saharan African countries that relates real output growth to world growth weighted by trading partner countries plus several control variables: oil prices, non-oil prices, a measure of global financial stress, and country fixed effects see Drummond and Ramirez, And for , the model WEO forecast Source: Drummond and Ramirez Any factors idiosyncratic to these countries apparently Percent 3.

Negative domestic shocks seem to predominate. In general, the model suggests that any positive spillover effects will be very mild for most countries Figure 2. Expected spillovers account for only a fraction of projected growth in those years, partly because according to the model, sub-Saharan Africa will still be feeling the lagged effects of the global downturn.

One implication is that at least in the first few years of the recovery, domestic demand might have to be the main driver of growth. Beyond financial support, there are several other changes afoot. Fiscal Policy and Economic Performance in Sub-Saharan Africa: Effectiveness, Challenges, and Prospects Introduction and Main Messages q Building on previous staff analysis, this chapter looks at the role of fiscal policy in promoting sound The impact of the global financial crisis on sub- economic performance in sub-Saharan Africa in Saharan African SSA countries brings to the three areas: i countercyclical support during forefront the role of fiscal policy in stabilization and periods of sluggish economic growth or recessions; development.

The fiscal impact of the crisis is large; ii safeguarding debt sustainability; and in particular, revenues have suffered because of less iii facilitating long-term growth. The chapter economic activity and lower commodity prices. Recognizing that the global financial crisis x How might the current downturn affect threatened to hit the region hard, previous staff debt sustainability? It found that i key achieve development objectives, such as the determinants of the scope for fiscal stimulus are the Millennium Development Goals MDGs?

Fiscal targets have achieved primary fiscal surpluses has have been loosened in about three fourths of nearly tripled, and, supported by debt relief, African countries that have an active IMF external debt has been reduced significantly. Improving the efficiency of during the past two decades. Making spending in sub-Saharan Africa, which is countercyclical fiscal policy more effective the least efficient among developing will require reinforcing automatic stabilizers, regions, needs to be supported by better enhancing fiscal institutions, relaxing institutions.

Special institutions, Africa such as fiscal rules, fiscal responsibility laws, Over the past two decades sub-Saharan Africa has and commodity stabilization funds, may be made remarkable gains in promoting growth and helpful, in particular if basic fiscal economic stability. Saharan Africa growth takeoff. But a more prolonged global slowdown could regional conflicts.

The Vulnerability-Flex Mechanism: A success story?

At the beginning of the s only to improve public financial management 12 percent of countries averaged more than PFM. The level and rising commodity prices, and spending restraint. Oil exporters were grouped separately because these countries had significant in sub-Saharan Africa, public very different fiscal experiences during the recent commodity investment in physical and human capital cycle.

Figure 2. Fast-growing non-oil exporters held spending as authorities try to reduce output volatility, a share of GDP roughly constant while bringing smooth consumption, and limit debt buildup. By the end of the period they To be effective, fiscal policy should be too were in surplus.

Low-growth countries did reinforced by appropriate monetary policies. Debt indicators also improved dramatically, especially for oil Figure 2. Sub-Saharan Africa: Fiscal Balance exporters and high-growth non-oil exporters Deterioration, vs. As a group, Percent of GDP, excluding grants low-growth non-oil exporters ended the period with high levels of debt. Fiscal deficits are projected to rise in many countries in sub- Saharan Africa Figure 2.

Evidence from a recent Fiscal policy directed to stabilization needs to be study of the size of tax and government designed to maximize its impact, implemented spending multipliers for selected countries in quickly, and withdrawn early enough to eastern and southern Africa suggests that in minimize risks to debt sustainability. In some countries the size of multipliers may be particular, it must cope with two challenges: small beyond two years.

Fiscal Multipliers: Size and Determinants What can countries do to increase fiscal multipliers? Spending could be targeted to The effectiveness of fiscal policy depends on poorer and more liquidity-constrained the size of the fiscal multipliers. A fiscal consumers and to goods and services where multiplier is the ratio of the change in output to leakages into savings and imports are few.

The size of fiscal monetary authorities can accommodate fiscal multipliers varies from country to country, can expansion. Over the medium term, deepening change over time, and depends on and developing domestic financial markets circumstances. In advanced economies estimated multipliers range from about negative 2 up to 3. Multipliers tend to be smaller Procyclical fiscal behavior is characterized by in developing countries, where the crowding-out fiscal expansions in good times and contractions effects of fiscal policy may be larger than in in bad times, both of which exacerbate rather advanced economies due to less access to than smooth output volatility.

Procyclicality can international capital markets, smaller domestic be measured in several ways, such as financial markets, or less accommodative correlations between cyclically adjusted monetary policy. Multipliers can be negative if measures of government activity and the output fiscal expansions lead to a loss in confidence gap or on the basis of refined statistical models. Owing to a shortage of high-frequency data and Table 2. Range of Fiscal Multipliers1 reliable estimates for cyclically adjusted fiscal Multipliers at different horizons positions for sub-Saharan Africa, these methods One One Two or cannot reliably be applied in the region.

Sub-Saharan Africa:Weathering the Storm. IMF Regional Economic Outlook, 2009

Note: Fiscal amplitude defined as the differences in real government spending growth in good and bad times. Pairwise correlation coefficients computed between changes in real government spending and real GDP growth. Good bad times defined as positive negative deviations of real GDP growth from the sample median. However, fiscal procyclicality can be gauged by countries e. A positive clear pattern. Fiscal Fiscal policy may have tended to be more policy is more procyclical in countries with procyclical in sub-Saharan Africa than in more larger correlation coefficients and fiscal advanced economies for several reasons.

Gadenne forthcoming reach similar results. Similar factors may also explain significant that countries with higher debt-to-GDP variations in the degree of fiscal procyclicality ratios and therefore less fiscal space observed among sub-Saharan African countries. Results are less clear-cut procyclicality in sub-Saharan Africa is influenced with regard to financial sector by several factors and sometimes varies by development, possibly because spending category Table 2.

Fiscal policy is domestic financing constraints, are more procyclical in countries with more exposed to the volatility of binding financing restrictions because international capital markets, which they are not able to finance a have been shown to be highly countercyclical fiscal policy during an procyclical Kaminsky, Reinhart, and economic downturn. Changes in Fiscal Procyclicality by aid flows have been mild Bulir and Decade, — Hamman, , and declining s s s over the last two decades Chauvet and Regions Guillamont, Sub-Saharan Africa Countries with Low-income countries Hebbel, ; Akitoby and others, 1Amplitude of central government total spending in percent.

In line with first priority. Automatic stabilizers are smaller in findings for OECD countries Lane, sub-Saharan African countries because revenue- , capital spending tends to be to-GDP ratios are generally lower and tax more procyclical than current spending. Reinforcing progress in some of these areas, fiscal automatic stabilizers would require continuous procyclicality has on average declined somewhat efforts to mobilize revenue and develop social since the s, as it has in other developing insurance programs. The average revenue-to- countries Table 2.

GDP ratio in non-oil-exporting sub-Saharan African countries is 21 percent, compared with more than 40 percent in developed countries.

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A CPIA comprises criteria grouped in four clusters: a taxes, revenue mobilization efforts should economic management; b structural policies; c policies for social inclusion and equity; and d public sector management and institutions. For each criterion, countries are rated on a scale of 1 low to 6 high. CHECKS ranks countries on a scale between 0 and 6 on the basis of such institutional features as elected and independent legislatures capable of exerting more effective restraints on executive branch decisions, including those on fiscal policy.

This lacks the flexibility to respond to sharp shocks; would generate important efficiency gains and instead, they propose a rule centered on long- help improve the de facto progressivity of the term debt sustainability, which would provide tax system—an attractive feature of automatic flexibility for countercyclical policy and define stabilizers in more advanced economies. On the fiscal space for priority spending. For expenditure side, it would be desirable, with commodity exporters, Box 2.

Existing programs that are general meet basic governance standards. Enhancing Fiscal Institutions The fact that most sub-Saharan African In most cases, improving fiscal controls by countries now adopting countercyclical policies enhancing basic institutions should be a priority. For commodity exporters this formulation, execution, and reporting, such as would imply running fiscal surpluses during a i a budget law and the institutions necessary to revenue boom and building up precautionary enforce it; ii a ministry of finance empowered savings to cushion a plunge in revenues during to control the budget activities of line ministers downturns.

Any tendency toward an easing and other executive branch leaders and to bias—significant easing during downturns and coordinate reforms; iii a comprehensive and little tightening during upturns—needs to be credible budget that eliminates extrabudgetary curtailed to minimize the risk of debt rising.

Improving payment arrears and allows regular fiscal reports access to external capital markets could also to be produced on time. Such institutions are help if complemented by measures that help crucial not only to impose political controls to sustain investor confidence particularly during curb procyclical fiscal bias in good times but downturns so as to contain procyclical capital also to reduce administrative constraints that flows. Among emerging and frontier markets lengthen implementation lags and make it hard with well-functioning PFM systems, such to target expenditure well.

With regard to responsibility laws, cyclically adjusted budget debt structure, it would be important in targets, and commodity stabilization funds may expansionary periods to adopt a strategy that also be useful. Sustainability Addressing Technical and Administrative Many sub-Saharan African countries had fiscal Constraints space available to respond to the global financial crisis.

This section will address three questions: Technical and administrative constraints increase lags in the formulation and x How has debt evolved over time? Recent Patterns in Debt Reliable indicators of the cyclical position of the Accumulation economy and its impact on the budget are an important precondition for countercyclical fiscal In recent years debt indicators in sub-Saharan policy.

Heavily Indebted Poor availability and timeliness of the high-frequency Countries HIPC Initiative and Multilateral indicators necessary to estimate accurately the Debt Relief Initiative MDRI debt relief has timing and magnitude of deviations from trend significantly reduced the debt burden of eligible output; ii difficulties in estimating trend output sub-Saharan African countries.

Post-completion reliable estimates of elasticities from tax and point debt has been reduced by as much as expenditure data should continue. Further 95 percent excluding traditional relief. Based on debt address administrative constraints, such as sustainability analyses DSAs , mostly done in conflicting procurement policies and multiple see Box 2. Debt vulnerabilities differed between two groups of sub-Saharan African countries Table 2.

These clearly show a higher risk of debt The global financial crisis, like the food and fuel distress, highlighting their need for price crisis that preceded it, has put extra relief to achieve debt sustainability; pressure on sub-Saharan African fiscal balances, 90 percent are classified as at high risk potentially compromising progress these of debt distress or as already in distress. The crises affected their debt x Countries that are not eligible for debt indicators through several interrelated channels: relief from the HIPC Initiative and the i more borrowing, external and domestic, than MDRI non-HIPCs and those that was projected previously was needed to finance have already fully benefited from debt higher deficits, which led to faster buildup of relief HIPC completion point public debt; ii real GDP growth was slower; countries.

Debt Sustainability Analysis The objective of the IMF-World Bank debt sustainability framework, which was introduced in , is to support low-income countries in their efforts to achieve their development goals without creating future debt problems. The risk of debt distress is derived by reviewing the evolution of debt burden indicators compared to their indicative policy-dependent debt-burden thresholds using a baseline scenario, alternative scenarios, and stress tests. A comparison of recent 8 interim countries 20 completion point countries and precrisis DSAs combined with simulations Billions of U.

However, while 60 almost all countries have been affected, debt 40 Risks decision point. Table 2.

Urbanization in Sub-Saharan Africa | Center for Strategic and International Studies

Sub-Saharan Africa: Central Government Balance and Public Expenditure and Financial While an expansionary fiscal policy may be Accountability Assessment Score appropriate in the short term, sub-Saharan African 15 countries need to prepare to transition back to Average —07 fiscal balance, excluding grants 10 medium-term fiscal objectives. The speed of the 5 transition back depends on the size of the shock as well as country-specific characteristics. The 0 transition entails both short- and medium-term -5 measures.

Given Figure 2. Sub-Saharan Africa: Public Expenditure and the risk that the crisis could permanently lower Financial Accountability Assessment Score by Risk of Debt Distress output growth, authorities should also review the 6 need for additional growth- and competitiveness- enhancing structural measures to return to Median, high, and low scores in each group 5 precrisis growth levels.

A signal finding in administration, efforts to raise more the literature is that investment is more robustly revenue should continue by expanding associated with growth than is current spending the tax base and reinforcing revenue Easterly and Rebelo, ; Gupta and others, administration. Indeed, Barro and Sala-i-Martin find the impact of government consumption to be unambiguously negative. Beyond short- need to be carefully nuanced. First, not all current term stabilization, fiscal policy—defined broadly spending is the same.

This section first reviews the essential to delivering services, especially in health potential linkages between the composition and and education. The World Bank documents efficiency of fiscal policy and growth focusing on how inadequate spending on maintenance has the expenditure side. Also, in most countries revenue constraints limit the scope for spending more on Needs and circumstances vary by country, but priority areas by reallocating budget resources. Meta-Analysis of Fiscal Outcomes seem to have some scope to raise the share of capital budgets in total expenditure but in most Positive 90 cases still could not reach the level of spending Inconclusive 80 Negative needed to address infrastructure needs without 70 raising additional revenue.

The answer cannot be Source: Nijkamp and Poot While useful in one country may fail to address the there has been less research into the economic constraints to growth in another. Nijkamp and the return on education by increasing life Poot give a good sense of the overall expectancy Schultz, ; Gyimah-Brempong results. They group the results of 93 studies into and Wilson, Comparatively poor health and category as positive, negative, or inconclusive.

Though the private sector contributes a significant Investing in human capital. In an influential early Because of spillover effects and increasing returns, study, Mankiw, Romer, and Weil found private incentives will undersupply human capital. Health and Education Indicators, —07 Figure 2. Sub-Saharan Africa has a 2 percentage points. Estache reports very huge infrastructure deficit and service costs there high payoffs to infrastructure investment, lending are high, even compared with other LICs. Rates of return Figure 2. In part this shortfall is funds. Al-Samarrai finds in case studies that The greatest needs are in power generation, rising school enrollment is likely to be accommodated initially followed by transport and water and sanitation.

The fact that changes in spending tend to lag rather through the public sector, although there has been than lead changes in enrollment suggests that public choice is the primary driver and that spending is an effect rather than a substantial private interest in telecommunications. Annual Spending Needs on Infrastructure in integration would help to maximize the benefits of Sub-Saharan Africa infrastructure investment.

Many countries are too Capital Operations and Total small to achieve minimum efficient scale of Sector Expenditure Maintenance Spending production in some services, and exploiting Billions of U. Moreover, some of ICT 7 2 9 the most cost-effective resources may be located Irrigation 2. Power Institutional reforms should also cover such areas as performance contracts, independent audits, and obtained for some sectors, such as power, roads, parastatal governance reform World Bank, Achieving Long-Term Fiscal Policy Goals Africa will also need additional aid, especially for low-income fragile states where essential Financing infrastructure spending may represent as much as Fiscal frameworks need to respect long-term debt 30 percent of GDP or more.

Data envelopment Improving efficiency by adequately funding analysis is a widely used approach that estimates maintenance, raising utility tariffs to full cost- an efficient production frontier using comparable recovery level, increasing the currently low cross-country data on inputs typically spending as execution rates of capital budgets, and shelving a percent of GDP and outputs social or low-return projects could narrow the gap by economic indicators.

According to estimates from Herrera Figure 2. The 70 conclusions are reminiscent of an earlier study by 60 Gupta and Verhoeven based on data from Percent 50 the s and s, which suggests the gap has 40 not significantly narrowed in the last few decades. Thus sub- Source: Herrera and Pang Saharan Africa needs not only more investment corruption, government effectiveness, rule of law, but smarter investment based on improving the regulatory quality, and voice and accountability.

Sub-Saharan Africa Regional Economic Outlook, April 2019

Fast- systems. The panel on the valuable as a source of fiscal space because they right shows the change in governance scores over do not require additional resources, which could the period. High-growth countries improved their crowd out private sector activity or, if financed scores, but oil exporters and low-growth countries externally, cause Dutch disease. Simulations by evidence a deterioration.

When the quality of between governance and outcomes, with partial governance is low, projects and programs are less regressions of two public sector—related outcomes likely to be targeted and implemented well. If gross school enrollment and under-5 mortality PFM systems are weak, simply committing more against an index of World Bank governance resources to development priorities may fail to indicators.

Both figures control for public achieve desired outcomes. Sub-Saharan Africa: Governance Indicators 0. Sub-Saharan Africa: Governance and Human Capital Outcomes 90 Gross school enrollment rate, percent 80 70 Under-5 mortality rate 60 50 40 30 20 50 10 0 0 Overall, it appears that while fiscal policy priorities Notably, regressing these outcomes against public for individual countries may vary depending on spending alone finds a statistically significant unique conditions and circumstances, widespread relationship.

But when governance is added to the shortages of infrastructure and human capital in equation, the coefficient on expenditure actually sub-Saharan Africa offer a clear agenda for becomes marginally insignificant. However, more spending in the medium term. Improving careful modeling by Baldacci and others efficiency would enhance the value of expenditure; finds that both expenditure and the quality of that, in turn, depends on building capacity for governance play an important role.

In particular, many commodity exporters have found it difficult to smooth and decouple government expenditures from the short-term volatility of revenues. With many families affected by the crisis, however, progress toward the Millennium Development Goals has receded. Looking ahead, fiscal policy must balance support for the recovery with enhancing future growth prospects, debt sustainability, and poverty reduction. Published biannually in May and October.

Debt Sustainability Analysis 2. Range of Fiscal Multipliers 2. Risk of Debt Distress by Country Grouping 2. Sub-Saharan Africa: Exports by Destination 1. Sub-Saharan Africa: Policy Responses, 1. Sub-Saharan Africa: Fiscal Indicators 2.