Download AFR Fiscal Policy for Growth

Fiscal Policy for Growth in
Africa in the light of the
Crisis
by Kathie Krumm and Chandana Kularatne
World Bank
African Economic Conference 2010, Tunisia
Motivation - Outline
 Motivation:
 What type of Fiscal Policy stance did SubSaharan Africa take during the crisis?
 What are some of the factors behind the fiscal
policy stance taken?
 Outline




Introduction/Context
Conceptual framework
Country experiences
Key messages/Conclusions
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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Context: Building on a base of
improved fiscal performance
 Overall fiscal
 Fiscal space for
stance since early
pro-growth
1990s
expenditures since
early 2000s
 Positive Primary
fiscal balances in
72% of SSA by
2008 compared
with a mere 28%
early 1990s
Source: Regional Economic Outlook,
IMF
 Infrastructure
spending in Africa:
$35b of $45b from
public sector--$20b
O&M, $15b capital
Source: Africa’s Infrastructure: A Time
for Transformation, World Bank
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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Context: Global crisis threatened to undermine
gains in growth and poverty reduction

Region already hit by – first -- food and fuel price crises

A – second– global financial crisis affected Region less

Last but not least --third -- global slowdown crisis hurting
Africa through four main channels
 Reduced demand for exports combined with an initial
decline incommodity prices;
 Reduced capital inflows, incl. threat of declining aid and
costly trade finance;
 Decline in remittances (exacerbated by return migration
and youth unemployment);
 Decline in fiscal revenues

Some countries with pre-existing macroeconomic imbalances
(Ethiopia, Ghana, South Africa)
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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Context: Africa’s growth rate expected to
drop from 7% in 2007 and 5% in 2008 to
1% in 2009
GDP Growth in Sub-Saharan Africa
8
6.9
7
GDP Growth %
6
6.2
6.6
6.9
6.1
5.1
5.5
4.9
5
4.2
4
4.1
3.8
3
2.4
2
1
November
2008
Estimates
March 2009
Estimates
October 2009
Estimates
0.7
0
2003
2004
2005
2006
2007
2008
2009
2010
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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Context: Larger growth premium
for developing countries
Trend decoupling
between advanced and
developing economies?
Can Africa sustain growth
premium post-crisis?
World Output Growth (%)
1961 - 2011
10.0
8.0
6.0
Developing Country Growth Differential
1961-2011
Advanced
4.0
Developing Countries
6.0
Trend
4.0
2.0
2.0
0.0
-4.0
-6.0
Real GDP Growth. Source: World Bank World
Development Indicators and staff estimates and
forecasts.
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2009
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
1964
-2.0
1961
0.0
-2.0
Real GDP growth in developing countries minus advanced
countries. Source: World Bank World Development Indicators and
staff estimates and forecasts. Hodrick-Prescott trend.
-4.0
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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Conceptual Framework: How has
fiscal policy in Africa responded
Options
1
2
3
4
Fiscal Stance
Stimulus
No adjustment
Partial
adjustment
Full adjustment
Revenue shock
(economic
environment)
-2
-2
-2
-2
Expenditure
response
(discretionary)
+1
0
-1
-2
Deficit change
-3
-2
-1
0




Shock in fiscal environment: primarily revenue shock
Discretionary policy response: primarily expenditures
Adjustment Or Accomodation/Financing? Or Stimulus?
Quality of that adjustment for growth
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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Conceptual Framework: How has
fiscal policy in Africa responded?
 Where did countries end up and
why?
 Initial macro-fiscal-debt distress position
 What type of financing available – domestic
versus foreign
 Stimulus versus accommodate versus full
adjustment – Empirical evidence show
limited impact of additional spending
 Composition of expenditures – which
expenditures to increase?
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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Impact of Crisis: How large
was the Revenue Channel?
Government Revenue,
Excluding Grants (% of GDP)
30.0
Government Revenue in Sub-Saharan Africa
28.0
Oil-exporting
Countreis
26.0
Middle-Income
Countries
24.0
22.0
20.0
Low-income
Countries
18.0
Fragile Countries
16.0
14.0
2007
2008
2009
2010
2008 includes 2008/09 fiscal year; 2009 includes 2009/10 fiscal year
Source: Regional Economic Outlook, IMF (October 2009)
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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County Experiences: Fiscal Stance
LEGEND
Fiscal Tightening - ET, GH, RW
Based on
comparing 2009
fiscal stance
projected in July
2008 with
projection of
July 2009
Partial Adjustment – MZ, SD, UG
No Adjustment – SN, BF
Stimulus – KE, NG, TZ, ZM
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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…Revenue, Expenditure and Deficit
(relative to earlier projections)
Fiscal
Stance
County
Debt
Distre
ss
Risk
Fiscal Projection Changes
Balance
10
Ethiopia
Moderate
Balance
Revenue Expenditure (Ex. Grant) (In. Grant)
2.0
Rwanda
Balance
Ghana
3.6
Balance
Revenue Expenditure (Ex. Grant) (In. Grant)
1.3
1.1
0.3
Moderate
-10
Fiscal
Tightening
Fiscal Projection Changes
2.3
-4.1
0
-0.5
Country
Debt
Distress
Risk
-0.8
-1.0
0.5
Moderate
1.9
2.0
-1.3
-3.0
2.0
Partial
Adjustment
Mozambi
-que
-0.5
Low
-0.5
Uganda
-0.1
Senegal
Low
-2.8
-3.1
0.2
0.0
-0.2
-2.0
-0.3
-0.5
No
Adjustment
Low
-4.0
2.0
0.5
0.4
-1.5
-2
-1.9
Burkina
Faso
High
0.4
0.0
0.0
-2.0
-0.8
-1.0
-4.5
1.0
Zambia
Low
0.8
-1.0
-1.7
-0.9
Kenya
Low
5.0
0.1
1.8
-1.6
-1.6
0.0
-4.0
-5.0
Stimulus
Tanzania
-1.1
Low
-0.2
-1.4
0.9
-1.5
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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What factors explain the differences
in fiscal stance?
 Low risk of debt distress
 Macroeconomic stability pre-crisis
Fiscal space if one wants to
utilize
 Resource rich that managed
commodity boom relatively well
Fiscal space despite sharp
commodity price decline
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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How are countries financing countercyclical fiscal stances?
7
5
Fiscal
Tightening
Partial
Adjustment
No
Adjustment
Stumulus
16.6
3
1
-1
-3
Domestic Financing
Foreign Financing
-5
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
Total
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How has composition of spending
responded?
Capital expenditure—mainly infrastructure—
protected when fiscal space was there to do so
Stimulus countries
Capital
Expenditure
Currunt
Expenditure
30.0
25.0
Fiscal tightening countries
8.0
9.2
15.7
12.6
25.0
3.1
20.4
5.5
20.0
15.0
19.1
12.5
5.0
0.0
Currunt
Expenditure
40.0
30.0
15.0
10.0
45.0
35.0
20.0
Capital
Expenditure
11.2
10.0
25.4
5.0
2008/2009
2009/2010
Kenya
2008
2009
Nigeria
0.0
9.3
24.1
8.2
8.6
2008
2009
Ghana
8.6
2008
2009
Ethiopia
Execution of public investment
budget
Capital Expenditures, 2009
Capital Expenditures, 2008
Planned capital expenditures
Planned capital expenditures
Observed capital expenditures
Observed capital expenditures
11.3
9.0
10.4
9.2
9.0
7.4
9.5
8.3
8.1 7.9
10.8
10.5
9.8
9.5
7.9
7.3 7.1
5.6
4.6
Sub-Saharan Oil exporters
Africa
MICs
4.6
LICs
Fragile states
Sub-Saharan Oil exporters
Africa
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
MICs
LICs
Fragile states
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Key messages/Conclusions
 Responses reflected initial macro-fiscal
conditions and ability to increase financing,
which was mostly domestic;
 Most countries did not fully adjust to the
revenue shock, though actual expenditures
were on average lower than planned
 Ability to actively increase expenditures was
limited partly due to absence of ‘ready to go’
projects or ‘scalable’ expenditure programs
 Points to the need to continue to strengthen
PEM/PIP processes
Fiscal policy for growth in Africa in light of the crisis, AEC, 2010, Tunisia
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