Fiscal Policy in Sub-Saharan Africa in Response to the Impact of the Global Crisis

The global financial crisis poses significant challenges to fiscal policies in Sub-Saharan African countries. Growth will weaken considerably as export prices and volumes, remittances, tourism, and capital flows decline. The fiscal effects of the crisis are likely to be large and to operate mainly via revenue losses, with commodity-related revenues particularly hard hit. Countries will need to weigh their options for fiscal policy responses. Countries with output gaps and sustainable debt and financing options have scope to implement expansionary policies, by letting automatic stabilizers work, accommodating declines in commodity-related revenues, and in some cases implementing discretionary fiscal stimulus. The focus of fiscal stimulus should be on the expenditure side, particularly infrastructure and social spending given pressing needs, as reducing tax rates may be inequitable and the scope for doing so is limited given low revenue ratios. Other countries will have to adjust, in a way that will not affect critical spending. Additional donor support would reduce the need for adjustment. In all cases, countries should give priority to expanding social safety nets as needed to cushion the impact of the crisis on the poor.