Marrakesh, Morocco, March 23, 2019 – African countries should adopt a fiscal policy that favours the poor and considers the implications of such a plan for income distribution and inequality, says the Economic Commission for Africa (ECA).
To reduce fiscal vulnerability and boost tax revenue, the report calls on African states to adopt a countercyclical fiscal policy instead of the a-cyclical strategy that is now more prevalent on the continent, the ECA says in its annual Economic Report on Africa (ERA) launched today in Marrakesh, Morocco.
“Countercyclical fiscal policy means reducing spending and raising taxes during spending boom periods and increasing spending and cutting taxes during recessions,” says the report. By adopting a countercyclical policy instead of the a-cyclical type which does not take the business cycle into account, African countries can increase their tax revenue by up to 5 percent, according to the Report.
It calls on African governments to strengthen macroeconomic management, improve spending efficiencies and enhance their capacity to mobilize revenue because fiscal management on the continent has to a large extent been responsible for the continent’s lack of macroeconomic instability.
Also, it encourages governments on the continent to re-allocate more funds to health and education to achieve higher investment and growth.
This is because “private investment has the largest influence on real gross domestic product (GDP) per capita in Africa in the long run compared with other factors.”
“Reducing military spending will also boost growth in Africa,” the ERA says.
The Report also calls for the use of fiscal policy to address gender inequality and promote “gender budgeting in normal budgetary processes.”
Among other things, it wants African governments to see that their spending plans boost domestic demand for manufactured goods because government consumption has the second largest impact on manufactured value added.
A “full implementation” of the African Continental Free Trade Agreement (AfCFTA) can also increase total investment in Africa, says the Report.
In a bid to increase investment, it cautions African countries not to join in cutting corporate taxes, in what it describes as the “global race to the bottom” as available evidences show that the spinoffs in terms of investments generated are not commensurate to the cut made.
This 2019 edition of the Economic Report on Africa whose theme is “Fiscal Policy for Financing Sustainable Development in Africa”, examines the institutional and policy reforms that can enable African countries to maximize domestic public resource mobilization to finance their development agenda, focusing on the instrumental role of fiscal policy.
The Report identifies several quick wins in Africa’s pursuit of additional fiscal space to finance achievement of the Sustainable Development Goals (SDGs) and the aspirations of Agenda 2063.