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Impact of COVID-19 on the fiscal space for agricultural transformation in Africa

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Samuel Benin
POLICY SEMINAR
Virtual Event - The political economy of COVID-19: Impacts on agriculture and food policies
OCT 22, 2020 - 08:30 AM TO 10:00 AM EDT

Published in: Government & Nonprofit
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Impact of COVID-19 on the fiscal space for agricultural transformation in Africa

  1. 1. Samuel Benin Deputy Division Director, Africa Regional Office, IFPRI Virtual event on: The political economy of COVID-19: Impacts on agriculture and food policies October 22, 2020 Impact of COVID-19 on the fiscal space for agricultural transformation in Africa
  2. 2. Fiscal policies in response to the Covid-19 pandemic in Africa 52 15 20 35 18 6 13 22 18 3 37 15 16 4 0 11 22 33 44 55 Health Agriculture Other Taxes,licenses,etc. Loans Tax-deductible donations Informalsubsector Importtax VAT Prices Vulnerable Laidoff Incometax/Utilities Pension Sector Businesses/Private sector Markets Households Fig 1. Covid-19 response fiscal policies: targets and instruments (number of African countries) Not stated; 63%Reprioritize (incl. defer debt); 23% Contingency fund; 8% Loans; 6% Fig 2. Sources of financing Covid-19 response policies (% of African countries)  African countries using different fiscal policies to deal with the health effects and socioeconomic impacts (Fig 1).  The cost of the policies is estimated at 1% of GDP ( US$32 billion) for African countries.  While few of the countries have stated how these will be financed (Fig 2); the fiscal space seems limited (Fig 3). 0 2 4 6 8 10 12 0 2 4 6 8 10 12 Ethiopia Egypt Ghana Guinea-Bissau Mauritius Senegal SouthAfrica Tunisia LIDCs EMs G20 AEs Fig 3. Fiscal space for Covid-19 response policies, selected African countries and regional averages (% of GDP) Additional spending and forgone revenue Loans, equities, and guarantees Data sources: Based on IMF covid-19 policy tracker and emergency financial assistance by region (IMF 2000 https://www.imf.org/en/Topics/imf-and-covid19)
  3. 3. Concern for CAADP and Africa’s agricultural transformation  Fiscal space in Africa improved in 2000-2007; but has shrunk since the global financial crisis (Fig 4).  Interest payments has been rising rapidly since the global financial crisis (6%/yr) and squeezing public investment in especially agriculture and infrastructure (Fig 5).  Spending on agriculture is already too low (< 1% of GDP/yr). CAADP = Comprehensive Africa Agriculture Development Programme Data sources: Based on GFS (IMF 2020), SPEED (IFPRI 2020), WDI (World Bank 2020), Kose et al. (2020: http://www.worldbank.org/en/research/brief/fiscal-space), and BR reports (AUC 2018, 2020). 57 92 79 92 94 100 43 8 21 8 6 0 1st BR 2nd BR 1st BR 2nd BR 1st BR 2nd BR Overall Government agriculture expenditure (indicator 2.1i) Enhancing agricultural investment (theme 2) Fig 6: CAADP Biennial Review (BR): progress in achieving goals of the Malabo Declaration (% of countries) Not-on-track On track  Will further retard progress in CAADP:  Fewer countries on-track overall  None on-track for the targets on enhancing agricultural investment 1 6 11 16 21 0 20 40 60 80 2000 2003 2006 2009 2012 2015 2018 Index %ofGDP Fig 4: Fiscal space since 2000 (average for Africa) General government gross debt, % of GDP Total external debt stocks, % of GDP Long-term debt ratings, index from 1-21 2.1 3.0 1.9 5.7 6.4 6.4 3.0 2.0 2.5 11.1 12.0 14.1 2000-2006 2007-2009 2010-2017 Fig 5: Government expenditure (% of GDP) Other functions Interest Social Infrastructure, etc. Agriculture
  4. 4. Increasing fiscal space and building back better  Increasing efficiency spending. Critical investments (e.g. infrastructure) to:  Mitigate or reduce impacts of shocks  Facilitate more effective and efficient responses to shocks  Increasing ODA and refocusing its purpose (Fig 7)  Broadening the revenue base and increasing efficiency in revenue collection:  Including more of informal sector for greater growth prospects  More progressive taxes  Institutionalizing fiscal rules and stabilization funds for flexibility in managing shocks  Using medium-term expenditure frameworks for credibility and transparency in budgeting Data sources: Based on GFS (IMF 2020), CRS (OECD 2020), and WDI (World Bank 2020) 0 3 6 9 12 0 2 4 6 8 2002 2004 2006 2008 2010 2012 2014 2016 2018 %oftotalODA %ofGDP Fig 7: ODA to Africa Other ODA, % of GDP Emergency response ODA, % of GDP Emergency response ODA, % of total ODA

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