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AEC 2010 - Fiscal Policy for Growth in Africa in Light of the Crisis

12-Oct-2010

This paper assesses the fiscal response to the global crisis in low income countries in SubSaharan Africa (SSA), within the framework of fiscal policy for growth. In particular, it asks what has been the success of fiscal policy in protecting medium-term growth prospects in light of the crisis. When the global crisis hit in 2008, SSA countries were building on a base of fiscal performance improvement. Several of these countries planned to adjust little or only partially to the shock or institute fiscal stimulus packages, mainly countries with the necessary fiscal space and low risk of debt distress, as would be expected. In line with fiscal policy for growth, one spending area to protect or concentrate any increases if feasible is those likely to increase longterm growth. With this in mind, and building on recent expansion in their programs for expanding infrastructure, protection of this expansion has been a key objective in the fiscal response, for example. However, only a subset of countries were successful in this regard. Most governments’ actual expenditures were lower than budgeted. As a result, several countries had more contractionary fiscal stances and lower levels of growth-oriented expenditures than intended when fiscal policy response for growth was designed in face of the crisis. The paper concludes that most of the challenges in actually implementing higher quality expansionary fiscal policy in light of the crisis are similar to the challenges facing fiscal policy in supporting growth within a medium-term context, notably, strengthening of public investment management.

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