3 May 2017

Africa: World Bank Urges On Policy Reforms

Photo: The Observer
The World Bank has called on government to improve procurement processes such as in road tenders.

The Africa Pulse report 2017 by the World Bank has cautioned sub-Saharan governments against the risk of developing huge infrastructural projects using borrowed funds, and instead called for institutional reforms that could attract private sector capital.

World Bank chief economist for Africa Albert Zeufack and the Bank's lead economist Punam Chuhan-Pole said sub-Saharan countries have to undertake the much-needed development spending while avoiding increasing debt to unsustainable levels.

"When you read the Pulse, you realize that reforms that increase government efficiency include procurement; and procurement in the infrastructural sector is one of the evidence where corruption is actually widespread," Zeufack told journalists in a televised video conferencing from Washington DC.

Chuhan-Pole added: "The gap in infrastructure is just so huge... The impact of public investment on economic growth can be improved if countries implement policies that make investment more efficient."

Economic growth in sub-Saharan Africa is set to rebound in 2017 after registering the worst decline in more than two decades in 2016, according to the World Bank report.

Overall, the report calls for reforms to improve private sector growth and develop local capital markets. Other reforms that the economists noted are in the areas of fiscal discipline.

Donors remain keen on how recipient countries spend money, assessing how aid affects government spending, tax revenue and domestic borrowing.

"When countries are increasing fiscal adjustment, they need to limit wasteful expenditure and increase revenues... Countries could actually emphasize on taxing land speculation in capital cities than increasing revenue using consumption-related taxation [Value added tax on commodities]," said Zeufack.

Last year, the World Bank withdrew funding for the construction of key road projects in the oil sub-region and eastern Uganda. BoU says aid inflows have an effect on public spending.

The country's external debt has grown rapidly, according to experts. As of October, the debt levels were estimated at $10bn, according to information from Bank of Uganda. Uganda's public debt has risen by 12.7 per cent from 25.9 per cent of GDP in 2012/13 to 38.6 per cent in 2016/17. It is projected to rise to 45 per cent by 2020.

According to the 2017/18 financial year budget proposals, at least 12 per cent of the budget will be diverted towards servicing debt. Fitch, an international credit rating agency, said last year the debt-to-GDP ration for the region was shooting up to unprecedented levels.

According to the Pulse report, seven African countries including Kenya, Rwanda, Senegal, Mali, Cote d'lvoire and Ethiopia continue to exhibit economic resilience, with annual growth rate above 5.4 per cent in 2016/17 supported by domestic demand.

The report indicates that the global outlook is improving and should support the recovery of a number of sub-Saharan African countries. It shows that the continent's aggregate growth is expected to rise to 3.2 per cent in 2018 and 3.5 per cent in 2019, reflecting the recovery in the largest economies.

The report warns of risks that could hamper this growth. The report points to the slow pace in reforms, rising security threats, and political volatility in some countries heading for elections, as some of the issues that could hurt growth prospects.

"As countries move towards fiscal adjustment, we need to protect the right conditions for investment so that sub-Saharan African countries achieve a more robust recovery," Zeufact said.

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