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Macroeconomic “Shock-absorbers” for Africa

Guest post by: OECD Development Centre

Article Overview: The need for further fiscal consolidation

Macroeconomic “Shock-absorbers” for Africa

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

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  2.5 Conclusion: Economic Report on Africa 2007
  6.1 Macroeconomic policies for diversification: Economic Report on Africa 2007
  2.4 Growth prospects for 2007 and the medium-term outlook: Economic Report on Africa 2007
  5.1 Macroeconomic stance is crucial to diversification outcomes: Economic Report on Africa 2007

Article Tags: african development bank, african economic outlook, bust cycles, capital outlays, cfa franc, commodity prices, exchange rate flexibility, external competitiveness, fiscal consolidation, fiscal policy, inflation control, oecd development centre, oil producing countries, pinaud, policy insights, poverty reduction, price competitiveness, public finances, south african rand, wegner



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