African governments challenged to rethink fiscal policy as part of economic recovery
By Donald Kogai
African governments have been challenged to rethink revenue
mobilisation strategies as the impact of the Covid-19 pandemic
continues to exacerbate debt stress levels across the continent. This
was said during the Plenary Session of the African Economic
Research Consortium (AERC) Biannual Research Workshop held
under the theme of “Covid-19 Pandemic and Public Finance in
Africa: Challenges and Opportunities”, on Monday 31st May 2021.
Speaking at the event, World Bank Group Vice President and Chief
Economist Prof. Carmen Reinhart said most economies across the
world, inclusive of several African countries entered the pandemic
when they were at high risk of or in debt distress levels occasioned
by rising debts, slowing growth and weak financial conditions.
“The Covid-19 pandemic has exacerbated the challenges that existed
before the pandemic, worsening the debt situation even further.
The need to spend more on public health and social safety nets
programmes coupled with a slowdown in economic activities are all
exerting considerable pressure on government finances,” Prof.
Reinhart said. “Several governments across the continent are forced
to run wide fiscal deficits that are slowly translating into increasing
debt and debt distress.”
“Covid has been an exceptionally regressive crisis. It’s regressive
within countries and regressive across countries,” she added.
Since 2020, the Covid-19 crisis has deepened and continues to affect
the broader economy and people’s livelihoods. This has forced
various governments across the continent to roll out various
programmes to support the adversely impacted households, whilst
financing its operations and public service. Unfortunately, many
African countries have relatively high levels of debt and that means
that they do not have enough fiscal resources to respond to the
crisis and to help people, leading to debt stress levels.
“We are facing a more protracted downtime as conditions haven’t
normalised tourism, cross-border activities, and other key sectors of
the economy. In Africa, the income per capita Gross Domestic
Product (GDP) is not going to recover to its pre-crisis levels in 2021,
thus the biggest challenge of avoiding debt looms very largely.”
Against this backdrop, Prof. Reinhart highlighted the following
policy priorities going forward:
- Debt restructuring – borrowing from the historical debt restructuring lessons.
- Resource mobilisation by tackling fiscal problems through austerity measures.
- Widening of the revenue base to help reduce the debt levels and finance social services amidst the pandemic.
- Building safety nets through digital financial platforms to enable effective distribution of the government benefits.
- Climate financing – Engaging green finance while tackling climate-related risks that have been accumulating over time.
On his part, AERC Executive Director Prof. Njuguna Ndung’u said
the pandemic has exposed the structural vulnerabilities of most
African countries from health financing, health infrastructure,
social safety nets, economic diversification, and public finance.
“The negative effects of the Covid-19 pandemic are visible in all the
African regions, but most affected are in southern and western
Africa,” Prof. Ndung’u said. “Some African countries have fared
better than others depending on their initial conditions. The
countries that were already having debt distress fared even worse,
he added.”
Due to the devastating impact of the pandemic, African economies
are witnessing the reversals in the gains made over the last 20 years
in terms of poverty reduction and employment creation.
Across the continent, millions of people are going without jobs, cost
of living has increased. Interestingly the pandemic has brought out
the capacity of citizens to help each other. Private citizens mobilize
resources to uplift the poor, the needy, and to defray medical
expenses for the sick.
“There’s an opportunity to institute strong social protection
programmes in Africa to ensure support for the poorest and cushion
against those marginalised and future negative shocks- but
dependent on fiscal space,” He noted.
The 54th plenary session of the AERC Biannual Research Workshop
set the context for deliberations on a broad range of issues
including challenges and opportunities in reforming the state of
public finance in Africa.
Special Session in Honour of Prof. Benno Ndulu
Led by Jeffrey Fine, the Founding Executive Director of the AERC,
various speakers made their contributions in the Special Session
that was organized to honor Prof. Benno Ndulu, one of the most
celebrated academic in Africa, policy leader and founder of AERC.
The late Prof. Ndulu, passed away on the 22nd February 2021.
Benno, a celebrated Economist, Mentor and Scholar, was the first
Director of Research and the first African Executive Director of the
AERC. He was also a member of the AERC Board, Chair of the AERC
Programme Committee, founder member of the AERC African
Central Bank Governors’ Forum, thought leader and paper
presenter and discussant at AERC policy workshops. His
commitment and dedication to the AERC and its mandate to build
research capacity in Africa is highly commendable.
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