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tralac's Daily News Selection

tralac's Daily News Selection
Photo Credit: UNDP

20 Nov 2019

Diarise:  Sustainable development, sustainable debt: finding the right balance (2 December, Dakar). The conference, convened by the Presidency of the Republic of Senegal and the IMF, in partnership with the UN, will discuss and explore economic policies that would allow SSA countries to meet their development needs without jeopardizing debt sustainability.

Revenue Statistics in Africa 2019

Revenue Statistics in Africa is jointly undertaken by the OECD Centre for Tax Policy and Administration and the OECD Development Centre, the AUC and the African Tax Administration Forum with the financial support of the EU.  It compiles comparable tax revenue and non-tax revenue statistics for 26 countries in Africa: Botswana, Burkina Faso, Cabo Verde, Cameroon, Republic of the Congo, Democratic Republic of the Congo, Côte d'Ivoire, Egypt, Equatorial Guinea, Eswatini, Ghana, Kenya, Madagascar, Mali, Mauritania, Mauritius, Morocco, Niger, Nigeria, Rwanda, Senegal, Seychelles, South Africa, Togo, Tunisia and Uganda.  

Extracts from the report’s special feature: The AfCFTA and its impact on public revenues

Total revenues from trade were equivalent to 2.1% of GDP in 2017 on average across the 23 non-SACU countries participating in the report. Over the past decade, revenues from trade taxes have declined only slightly as a percentage of GDP: in 2008 they were equivalent to 2.2% of GDP on average (not including Nigeria, for which data in 2003 was not available). Including the SACU countries, trade revenues were equivalent to 1.9% of GDP on average in 2017 and 2.0% of GDP in 2008.

Revenue from trade taxes as a percentage of GDP ranged widely in 2017 (Figure 3.2). They equated to more than 4.0% of GDP in Mauritania (5.0%), Côte d'Ivoire (4.8%), Togo (4.7%) and Cabo Verde (4.0%) and less than 1% in the DRC, Equatorial Guinea, Mauritius, Morocco, Nigeria and Tunisia.

Revenue from trade taxes declined as a proportion of GDP between 2008 and 2017 in 13 of the non-SACU countries, while they increased in nine over the same period. The largest declines occurred in the Seychelles (2.8 p.p.), Morocco (1.1 p.p.), and the DRC (1.0 p.p.), while Mauritania and Togo recorded the largest increases (of 2.3 p.p. and 1.1 p.p., respectively). Revenues from trade taxes as a percentage of GDP were unchanged in Rwanda.

Looking ahead: Although the elimination of trade tariffs may reduce tax revenues across the region in the short term, this decline is expected to be offset in the longer term by increased revenues from other categories of tax as a result of growth in countries' economies generated by closer integration. As data from Revenue Statistics in Africa shows, the region has been progressively less reliant on revenues from trade taxes, in part because of the various trade agreements that have been established since the 1990s. On average across the 26 countries, revenues from trade taxes accounted for 11.8% of total tax revenues and were equivalent to 1.9% of GDP, down from 13.9% and 2.0% respectively in 2008.

Despite this lesser reliance, revenues from trade taxes remain an important source of public income for most African countries, especially among countries at lower income levels. The share of trade taxes to total tax revenues exceeds the regional average in all ten LDCs covered by this report, indicating that they were particularly vulnerable to the elimination of tariffs. The flexibilities envisaged under the AfCFTA, such as a longer transitional period for sensitive products, exclusion lists and adjustment facilities, are likely to be of critical importance, especially in a context where countries are under pressure to achieve the SDGs.  AfCFTA State Parties also have an opportunity to implement tax reforms that will support their adjustment to the new trading system.

UNCTAD's Least Developed Countries Report was released yesterday

Least developed countries, the world’s most impoverished nations, should proactively ensure external finance from all sources is directed to national development priorities. This approach is the best way to manage their aid dependency and eventually escape it, says UNCTAD’s Least Developed Countries Report 2019. The developing world has access to a new aid architecture, with a wider array of external finance sources, but this situation has resulted in more complexity and opacity for the most impoverished nations, the report notes. Moreover, this funding diversity has not translated into meaningful increases in development finance from all sources. Rather it has expanded the number of actors and instruments.

Official development assistance disbursements to LDCs have increased by only 2% annually since the Istanbul Programme of Action of 2011 and remain far from internationally agreed targets, the report observes.  “Critically, the linkages between external development finance and national development priorities are weakening,” said Rolf Traeger, chief of UNCTAD’s LDC section. The ectoral composition of ODA continues to be biased towards social sectors, which absorb 45% of total aid, compared to economic infrastructure and production sectors, which receive only 14% and 8% respectively.

Modern development finance is also characterized by a growing number of complex instruments and declining concessionality (a measure of the "softness" of a credit reflecting the benefit to the borrower compared to a loan at the market rate). The net result is that LDCs have increasingly resorted to debt financing, more than doubling their external debt stock from $146bn to $313bn between 2007 and 2017. Currently, one third of LDCs are in debt distress or at high risk of debt distress. “This threatens debt sustainability and economic development potential. These developments are further weakening the limited state capacities of LDCs,” Mr. Traeger said.

Table of contents:

Overview

Chapter 1: Sustainable Development Goals, structural transformation and financing for development

Chapter 2: Official flows and the evolving terms of aid dependence

Chapter 3: Private development cooperation: more bang for the buck?

Chapter 4: How dependence on external development finance is affecting fiscal policies

Chapter 5: Policies to enhance the development impact and effectiveness of external financial resources

UNCTAD's International Debt Management Conference concludes today.  The keynote address was delivered by Namibia's finance minister Carl H-G Schlettwein:

Let me take this opportunity to share with the conference the polices and measures that the Namibian government has been pursuing over the past four years in regard to shocks on growth and debt management.  At the time of the FY 2016/2017 budget statement, our economy was exposed to a complex set of domestic and external shocks. GDP growth had declined from 6.1% in 2015 to 0.6% in 2016; due to a combination of reduced public expenditure and commodity price crashed, the latter having affected our export earnings. As a result, the immediate effect on public debt stock was unprecedented. Debt grew at 30,1% per year and the high debt servicing burden had led to a credit rating downgrade, from investment grade to sub investment grade, for our foreign denominated bonds. Lost fiscal space coupled with high debt burden meant we had limited capacity to implement countercyclical policy to support the economic recovery. We could neither take up more debt, nor implement tax policy changes to boost public revenue or activity in a low growth environment.

Our policy response was two-fold. We chose to prioritize and scale-up spending on development and pro-growth programs and deploy ring-fenced project financing with limited, but targeted debt commitments. We undertook to address constraints on private sector development and support local participation, we strengthened allocative efficiency to ensure that critical service delivery was not impaired due to budget constraints, reviewed SOE governance law to facilitate SOE reforms and improve efficiency, took measures to enhance the competitiveness of the Namibian economy and implemented structural reforms to address impediments to businesses; all at the same time as implementing a sustainable fiscal framework designed to contain wasteful expenditure and reduce the budget deficit and growing indebtedness.  I am pleased to say that four years down the line we have achieved the following (pdf):

Profiled presentations:  The joint IMF-WB multipronged approach for addressing emerging debt vulnerabilities: presentation by IMF's Mark Flanagan.   Making debt work again for development - current pitfalls and challenges ahead: presentation by UNCTAD's Stephanie Blankenburg.  The full set of conference presentations can be downloaded here.    

The AfDB has posted a set of short reports on different aspects of climate change

(i) Feed and prosper Africa today and tomorrow. Scientific evidence suggests that the agriculture sector in Africa could experience prolonged droughts and/or floods due to extreme weather patterns such as El Nino. About 2%-7% of GDP loss is expected by 2100 in parts of the Sahara, 2%-4% & 0.4%-1.3% in Western and Central Africa, and Northern and Southern Africa, respectively. Arid and semi-arid land could widen by 60-80M ha. Fisheries will be particularly affected due to changes in sea temperatures, reducing productivity by 50%-60%. Viable arable land for production is predicted to decline by 9%-20% by 2080. It is likely crop pests and diseases will increase across Africa.

(ii)  Clean energy to power Africa’s future. Africa’s vulnerability to climate change means it faces the double challenge of integrating climate change considerations in the pursuit of economic growth and development for its citizens. Africa’s energy sector is central to the advancement of the continent’s growth. Close to 600 million citizens still lack access to affordable and reliable energy, which holds back economic progress, and sets back the continent’s GDP by an estimated 4 percent annually. However, compared to most fossil fuel-dependent industrialized countries, the energy transition in Africa presents an unprecedented advantage. With the exception of a few, most African countries have not exploited their fossil fuel reserves, and are therefore well positioned to meet their energy needs through alternative renewable and cleaner sources.

(iii) Climate information services. From 2005 to 2015, Africa experienced a high number of disasters that affected 180 million people. An average of 157 disasters were recorded each year, affecting nearly 10,000 people annually. Most notable are the 2015-2016 El Niño floods across the Horn and southern parts of Africa; and recently, Cyclone Idai, which wreaked havoc in Mozambique, Zimbabwe and Malawi, causing $1bn in infrastructure damage, according to United Nations estimates. Idai was closely followed by Cyclone Kenneth, just five weeks later. The challenges are compounded by limited national hazard warning capacities—uneven at best and non-existent at worst. The continent also trails among all regions in terms of land-based observation networks, meeting only about one-eighth of the global minimum requirements. The need for high quality climate information, delivered in real time, and fit-for-purpose in Africa’s diverse context, is indisputable.

(iv) Ensuring Africa’s resilience to climate change.  Addressing  the  challenge  of  access  to  potable  water  and  sanitation  for  underserved  populations,  exacerbated by climate change, requires scaling up of policy, institutional and governance reforms, as well as investments that deliver services to all. The Africa Water Vision 2025 has an ambitious aim “the  use  and  management  of  water  resources  are  equitable  and  sustainable  and  contribute  to  poverty alleviation, socio-economic development, regional cooperation, and the environment”. An estimated $13bn per annum is needed for Africa to meet the SDG goal 6 of universal access to clean water and sanitation. Proven innovations in the water and sanitation sector will improve water and sanitation access by reducing inefficiencies and high non-revenue water levels among utilities. Promoting uptake of smart technologies in sanitation solutions generate revenue for water utilities and communities.

(v) Paving the way for climate-resilient infrastructure: Building sustainable cities and low-carbon mobility in Africa. Africa  is  the  continent  with  the  most  rapidly  growing  urban  population,  with  more  than  80%  of  its  population growth expected to occur in cities over the next 30 years. An estimated $20-25bn per year needs to be invested in basic urban infrastructure, and an additional $20bn per year in housing to  respond  to  urban  population  growth—these  investments  need  to  be  climate-proofed  to  ensure  a  sustainable pathway for urban build out. The  following  projects  illustrate  how  the  African  Development  Bank  supports  Africa’s  transition  to  low-carbon and climate-resilient development in the infrastructure sector.+80%of Africa’s population growth expected to occur in cities over the next 30 years

Today's  Quick Links:

African Statistics Day: Let us make the invisible visible, says ECA’s Chinganya

The 2019 Africa-GIS Conference underlines the imperatives of technology and innovation for better living conditions

Namibia to implement a Blue Economy governance and management system by 2022

China contributes $500,000 to support LDCs and WTO accession

World Bank: Impact of fiscal policy on poverty and inequality in Uganda

OECD: Summary record of the 1067th DAC meeting (15 October 2019)