Overall, Africa has continued to maintain a positive fiscal position, with the average budget balance (excluding grants) of 0.1 per cent of GDP in 2006 compared to 0.4 per cent in 2005. For the 40 countries for which comparable data were available, there was a slight decrease in the number of countries having budget deficits in 2006 relative to 2005 (from 33 to 30) despite higher government expenditures in oil-importing countries due to higher oil prices (table 2.2). Significant increases in public sector investment resulted in sizeable budget deficits in some oil-exporting countries – Angola (-5.0 per cent), Chad (-4.4 per cent) and Egypt (-7.9 per cent).
Oil as a key factor in fiscal balance improvement Seven of the ten countries that had budget surpluses in 2006 were oil exporters (Algeria, Cameroon, Republic of Congo, Equatorial Guinea, Gabon, Libya and Sudan).
Therefore, oil continues to be the key factor behind the positive fiscal position for Africa as a whole, which raises concern over the sustainability of fiscal balance over the medium term. Official development assistance (ODA) is a major source of budget support for many non-oil economies. The dependence of government budgets on oil revenue and external aid constitutes a source of vulnerability for fiscal balance and GDP growth. For oil producers, fiscal sustainability will require effective strategies for prudent management of oil revenues and strategies to utilize these revenues for enhancing economic diversification. Non-oil countries need to design mechanisms for increased mobilization of revenue from domestic sources.
Pressure from oil prices threatens price stability For the second year, average consumer price inflation increased in Africa (from 8.5 per cent in 2005 to 9.9 per cent in 2006). Inflationary pressure results mainly from higher oil prices, and subsequent increase in production costs and lower output.
In most countries, food prices rose significantly due to higher transportation costs.
While inflation remained contained and low in most of the 52 African countries with available data, the risk of higher inflation remains a concern should higher prices persist in the near future.
Despite the increase in the average rate of inflation, the situation has improved. In 2006, 25 countries recorded inflation rates of less than 5 per cent, compared to 21 countries in 2005 (table 2.3). The number of countries with a two-digit inflation rate dropped from 17 in 2005 to 12 in 2006. The number of countries experiencing increased inflation fell from 33 in 2005 to 24 in 2006. However, a few countries experienced drastic increases in inflation. In Zimbabwe, inflation increased to 1216 per cent in 2006 compared to 237.8 per cent in 2005, owing to inflationary financing of the budget deficit and shortage of food, especially maize. In Guinea, the country with the second highest inflation rate in Africa, inflation remained high (27 per cent in 2006 compared to 31.4 per cent in 2005), due to the effects of high oil prices and imported inflation arising from high imports of consumer goods.
To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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