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6. Conclusions

Author(s):
Tetsuya Konuki, and Mauricio Villafuerte
Published Date:
August 2016
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Sub-Saharan African countries have in general run procyclical fiscal policies since 2000. This is not surprising in light of the fact that the majority of them are low-income and/or resource-dependent economies; existing literature finds that the fiscal policies of the majority of emerging market countries are still procyclical and that procyclicality is pronounced among resource-rich countries. The procyclicality of fiscal policy was exacerbated after the global financial crisis in 2009, particularly among sub-Saharan African oil exporters. This is somewhat worrying, given that these countries may have to face a prolonged period of low international commodity prices with depleted policy buffers in coming years.

This paper examined what explains the degree of fiscal policy procyclicality among sub-Saharan African countries. The results suggest that, even when correcting for endogeneity and other possible determinants, deep domestic financial markets and ample international reserves coverage could help countries run less procyclical fiscal policies. For instance, a lack of financial depth and reserves buffers would constrain a country to take expansionary fiscal policies during downturns. At the same time, to promote financial depth and build up reserves buffers, which would make it possible to avoid massive fiscal tightening in bad times, a country should accumulate financial savings (through overall fiscal surpluses) based on part of revenue windfalls in good times.

Although the regressions in this paper fail to find a statistically significant role for institutional strength in reducing the procyclicality of fiscal policy, the country case studies here and existing literature suggest that special fiscal institutions—fiscal rules and stabilization/saving funds—supported by strong political commitment and institutions should help build savings for rainy days. The experiences of Botswana and Chile may offer useful lessons for many sub-Saharan African countries.

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