Experts Debate Policy Options for Beating Economic Crisis.

Joint Press Release

Cairo, 4 June 2009 - African experts on economic issues held a day-long debate Wednesday 3rd June on policy measures necessary to tackle the current economic crisis.  The debate took place at the on-going meeting of the committee of experts of the African Union Conference of Minister of Finance and Economy; and the United Nations Economic Commission for Africa Conference of African Ministers of Finance, Planning and Economic Development.

The experts tackled the central theme of the conference, "Enhancing the effectiveness of fiscal policy for domestic resources mobilization."  The debate was wide-ranging, covering issues from good governance to game theory.

Key questions for the experts included how best to us fiscal policy in a time of economic crisis; how to make official development assistance contribute more to domestic resource mobilization; how to integrate Africa into the global economy without jeopardizing tax revenues and industrial development; and the best way of managing revenues from natural resources.

One of the experts reminded participants of the near inevitability of recession by quoting renown American economist, John Bates Clark, who observed in 1898, that: "The modern world regards business cycles much like the ancient Egyptians regarded the overflowing of the Nile.  The phenomenon recurs at intervals, it is of great importance to everyone, and natural causes of it are not in sight."

In other words, modern economies periodically go into crisis and recession and there is no sure way of preventing this from happening. Nevertheless, economists have developed sophisticated tools for managing the impacts of such crises, including fiscal policies.

The keynote presentation was made by the AU/ECA Secretariat.  It discussed the role of fiscal policy in the short term, to cushion economies from the turbulence and recession; and in the long term to boost investments and economic growth. 

However, many African countries can not afford to boost spending to counter the effects of economic recession, but instead tend to reduce their expenditure.  This is because many countries depend on export earnings, trade taxes, foreign direct investments, overseas remittances, and official development assistance.  During a recession, all these sources of revenue tend to decline.  It also becomes even harder for Africa to borrow from international financial markets.

During the debate, experts heard of an African country that established a kind of stability fund during the commodity price boom.  With the decline in oil prices, the government is using this fund to maintain its expenditures.

As Africa still faces a huge shortfall between available finance and investment needs, the discussion turned to the issues of taxation.  Experts heard that generating domestic resources through taxation would give countries greater fiscal space to determine their own development paths and avoid conditionalities that are usually attached to foreign funds.

 Experts also hear that many African countries have a greater capacity to tax than current revenues.  Tax revenues can therefore be improved my more efficient administration and by casting the net wider to include more property taxes and taxing the informal sector, which in many countries is quite large.  This could also promote good governance if taxation is linked to expenditure in a transparent way. 

Strengthening domestic financial institutions could also boost savings and provide resources for investment.  For example, the development of markets for long-term government bonds and provision of public guarantees, for a given percentage of bank loans, could reduce risks faced by domestic banks and create an incentive for them to engage in long-term lending.

Experts have been meeting from 2nd June and will end 5th June.  They will make recommendations for the consideration of ministers, who arrive in Cairo for their two-day meeting from 6 – 7 June 2009.  The ministers will then adopt policy measures that will based on these recommendations.

jointly issued by:
The ECA Information and Communication Service
PO Box 3001
Addis Ababa
Ethiopia

Tel: +251 11 551 5826
Fax: +251 11 551 0365
E-mail: ecainfo@uneca.org
Web: www.uneca.org
 
and

The African Union Communication and
 Information Division (DCI)
PO Box 3243
Addis Ababa
Ethiopia

Tel: +251 11 551 77 00 Ext. 236
+251 11 551 45 55
Fax: +251 11 551 12 99
E-mail: dinfo@africa-union.org
Web: www.africa-union.org