Skip to main content

Developing countries need to rebuild fiscal space to weather growth slowdowns- World Bank Group report



Faced with weaker export prospects, an impending rise in global interest rates, and fragile financial market sentiment, developing countries need to rebuild fiscal buffers to support economic activity in case of a growth slowdown, says the new edition of Global Economic Prospects, released today by the World Bank Group.

For many developing economies, lower oil prices have provided a timely opportunity for doing so.

In countries with elevated domestic debt or inflation, monetary policy options to deal with a potential slowdown are constrained. In the foreseeable future, these countries may need to employ fiscal stimulus measures to support growth.

But many developing countries have less fiscal space now than they did prior to 2008, having used fiscal stimulus during the global financial crisis. And in recent years, private debt levels have risen substantially in some developing countries.

A key finding from the analysis in the report is that in countries where debt and deficits have widened from pre-crisis levels, each fiscal dollar spent on activities designed to boost consumption and national income will have roughly a third less impact than it did in the run-up to the global financial crisis.

Because the so-called fiscal multiplier effect is weaker now for many developing countries, they need to rebuild budgets in the medium-term, at a pace determined to country-specific conditions.

For a number of oil-importing countries, lower oil prices offer a chance to improve fiscal positions more quickly than might have been possible before mid-2014.

"With oil likely to remain cheap for some time, oil-importing countries should lower or even eliminate fuel subsidies and rebuild the fiscal space needed to carry out future stimulus efforts. On the policy front, both the size and the quality of fiscal deficits matter, as do spending decisions. Emerging market economies would do well to invest in infrastructure and support social schemes vital to poverty reduction. Such policies can raise future productivity and reduce the fiscal deficit in the long run," said Kaushik Basu, Senior Vice President and Chief Economist at the World Bank. "This year's Global Economic Prospects now goes beyond prediction and deepens our understanding of our global economic predicament."

The report documents how well-designed and credible institutional mechanisms-such as fiscal rules, stabilization funds, and medium-term expenditure frameworks-are instrumental in fostering growth and restoring depleted fiscal buffers.

"The rebuilding of fiscal buffers will provide the room required to support activity during times of economic stress. The need for additional fiscal buffers is more pronounced now in an environment of uncertain growth prospects, limited policy options, and likely tighter global financial conditions," said Ayhan Kose, Director of Development Prospects at the World Bank.


Credit: World Bank Ghana

Comments

Popular posts from this blog

Akuapem-Apirede to promote tourism

By: Fred Yaw Sarpong sarpong007@gmaail.com
The Chiefs and people of Akuapem-Apirede in the Okere Constituency of the Akuapem North Municipality have put in place strategic plans to promote tourist sites in the town.
Apiredehene, Nana Saforo Okoampah III told the Daily Express that their vision is to develop Apirede in a modern way.
“We want to have a modern society and environment. We are doing this on the basis of promoting tourism here,” he added.
According to the Apiredehene, it’s their plan to promote the historic sites and the geographical location of the community.
Apirede is one of the 17 towns that forms the Akuapem State and historically, it used to house the armours of the Akuapem State. The community is part of the Nifa division of Akuapem.
He stated that one of those things was called ‘Odosu’ (the war god for Okuapemhene). “The Chief Executioner in those days for Akuapem also came from Apirede and items that he used were also kept here,” he stated.
“These are a lot of things …

PIAC told to go to court to enforce recommendations

By: Fred Yaw Sarpong
sarpong007@gmail.com

The Public Interest and Accountability Committee (PIAC), the mandated body to monitor the use of Ghana’s oil revenues has been asked to go to court to seek strict compliance of the laws covering accountability of oil funds in the country.

According to Dr. Steve Manteaw, the Campaign Coordinator for ISODEC and a member of the PIAC , it’s time for PIAC as a body to consider going to court to compel institutions responsible for managing Ghana’s oil revenue to answers some questions concerning the expenditure of oil funds.

He pointed out that there are several recommendations made by the PIAC in its past reports on management of petroleum revenues, and a lot of these recommendations has received no positive response from the institutions concerned.

He disclosed this to the Daily Express at a three-day workshop on Interrogating the 2016 Semi Annual PIAC Report at Koforidua in the Eastern Region.

The workshop was organized by the Institute of Financ…

BoG shuts down two financial institutions

The Bank of Ghana has closed down two financial institutions in the country. This was after the central bank investigation revealed that the two companies were operating without approval.

The two companies were Agro Development Fund Services Limited (ADFSL) and Hebron Financial Investment Limited (HFIL).

The Daily Express gathered that the ADFSL was asked to stop operating after the central bank realized the institution had not been licensed to take deposit from the public.

A statement from BoG said the ADFSL continued to operate despite the orders from the Bank of Ghana. It however closed down ADFSL’s operation until further notice.

The Bank of Ghana said that the ADFSL is located at Asufufu, opposite the Sunyani Traditional Council in the Brong Ahafo region.

“The decision to close down ADFSL is in furtherance of section 20(2) (g) of the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930). Bank of Ghana has investigated ADFSL thoroughly and has concluded that its a…