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
To learn more about this author, visit OECD Development Centre's Website.
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