Fiscal Policy Response During the Crisis in Low-Income African Economies
Fiscal Policy Response During the Crisis in Low-Income African Economies
This chapter examines the fiscal policy response of Africa's low-income countries to the financial crisis of 2007. In particular, it looks at those economies that seem to have been able to escape the procyclical fiscal bias that had plagued them for many decades. This helped mitigate the impact of the global crisis in the region. However, overall fiscal numbers mask two diverging and potentially troubling trends: current spending has been in most cases above budget plans, while capital outlays have been largely below. Empirical analysis suggests that the quality of governance and of budgetary institutions largely accounts for the difference between intended and observed current expenditure. In contrast, the under-execution of investment projects appears to be mostly due to political factors. This implementation gap between current and capital expenditure casts a shadow over future fiscal space, as the growing weight of not easily reversed current outlays intensifies spending rigidity and likely contributes to the observed drift in fiscal deficits even as growth has recovered.
Keywords: fiscal policy, low-income countries, Africa, financial crisis, current expenditure, investment projects, capital expenditure, fiscal deficits
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