Macroeconomic “Shock-absorbers” for Africa
Macroeconomic “Shock-absorbers” for Africa
Public finances in most African countries remain structurally
weak. They are markedly reliant on external concessional
financing, while facing absorption problems. Expenditures
targeted at poverty reduction and capital outlays remain low
by international standards. Above all and due to the modest
diversification of local economies, African fiscal revenues
are strongly susceptible to swings in commodity prices.
Despite this, some progress has been achieved in fiscal
medium-term programming. This might pave the way for
a future counter-cyclical use of resources, in oil-producing
countries in particular. Recent efforts have included
commitment to resource revenue transparency and the
formulation of fiscal policy within a medium-term
expenditure framework. This should avoid commitments
that are not sustainable and the associated boom-bust
cycles that have characterised the past (see box).
Upholding external competitiveness?
In a context of large exchange rate swings (US dollar
against the CFA franc and the South African rand in
particular) the upholding of external price competitiveness
may be increasingly high on African policy makers’ agenda,
which implies increased exchange-rate flexibility. While this
should not raise specific difficulties for African “managed
floaters” (within the limits of inflation control/targeting),
the issue of exchange-rate flexibility might surface again
as a major headache for policy makers in the CFA franc
area should the euro appreciate substantially.
African Economic Performance in 2004:
A Promise of Things to Come?
by Nicolas Pinaud and Lucia Wegner
Policy Insights No. 6 is derived from the African Economic Outlook 2004/2005, a joint publication
of the African Development Bank and the OECD Development Centre
Macroeconomic Shockabsorbers for Africa - To learn more about this author, visit OECD Development Centre's Website.
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The need for further fiscal consolidation
Public finances in most African countries remain structurally
weak. They are markedly reliant on external concessional
financing, while facing absorption problems. Expenditures
targeted at poverty reduction and capital outlays remain low
by international standards. Above all and due to the modest
diversification of local economies, African fiscal revenues
are strongly susceptible to swings in commodity prices.
Despite this, some progress has been achieved in fiscal
medium-term programming. This might pave the way for
a future counter-cyclical use of resources, in oil-producing
countries in particular. Recent efforts have included
commitment to resource revenue transparency and the
formulation of fiscal policy within a medium-term
expenditure framework. This should avoid commitments
that are not sustainable and the associated boom-bust
cycles that have characterised the past (see box).
Upholding external competitiveness?
In a context of large exchange rate swings (US dollar
against the CFA franc and the South African rand in
particular) the upholding of external price competitiveness
may be increasingly high on African policy makers’ agenda,
which implies increased exchange-rate flexibility. While this
should not raise specific difficulties for African “managed
floaters” (within the limits of inflation control/targeting),
the issue of exchange-rate flexibility might surface again
as a major headache for policy makers in the CFA franc
area should the euro appreciate substantially.
African Economic Performance in 2004:
A Promise of Things to Come?
by Nicolas Pinaud and Lucia Wegner
Policy Insights No. 6 is derived from the African Economic Outlook 2004/2005, a joint publication
of the African Development Bank and the OECD Development Centre
Macroeconomic Shockabsorbers for Africa - To learn more about this author, visit OECD Development Centre's Website.
Like this article? Share it with your friends
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