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Begin New Search Topic Fiscal Policy Political Geography Africa

1. Fiscal policy and commodity price shocks in South Africa

Author:
Tumisang Loate and Vincent Dadam
Publication Date:
04-2025
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper investigates the effect of commodity price shocks in a commodity-exporting small open economy, and the role of fiscal policy in transmitting these shocks to the rest of the economy. Using South African data, we first estimate an empirical model using a Bayesian vector autoregression model. We then develop a New Keynesian small open economy with labour market hysteresis and commodity price shocks. We find that a commodity price shock typically has an expansionary effect as real GDP and employment increase, which translates into higher tax revenue. The results from our dynamic stochastic general equilibrium model match the data. In addition, despite not modelling the tradable and non-tradable sectors explicitly, we find that there is an opportunity cost associated with taxing the commodity sector more than home production. This results in a higher trade deficit and government spending. Consequently, we also explore the role of countercyclical fiscal policy during a commodity boom.
Topic:
Economy, Fiscal Policy, Hysteresis, and Commodity Price Shock
Political Geography:
Africa and South Africa

2. Assessing the Fiscal Regime in Ghana’s Lithium Agreement

Author:
Thomas Scurfield and Denis Gyeyir
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
NRGI modeling indicates that the Ghanaian government has negotiated a government take for the country’s first lithium mine that is higher than Ghana’s legislated fiscal regime and the regimes of many other current and imminent lithium hard rock producers, such as Australia, the Democratic Republic of Congo and Zimbabwe. Modeling suggests an average effective tax rate (government revenues as a share of mine profits) of 58 percent (excluding paid state equity). Seventy percent of these government revenues depend on the profits that mine leaseholder Barari DV Ghana reports. To limit the risk of revenue shortfalls, the agreement should define the process for pricing the lithium, limit the deductibility of interest from taxable income, ensure state equity is non-dilutable and establish rules in the shareholders’ agreement about dividend payments. Given that modeling indicates an after-tax internal rate of return for investors in the Ewoyaa mine of around 102 percent (after debt financing), the government may be able to negotiate an even higher take in future deals for similarly profitable mines. A variable rate royalty could help achieve this higher take. To increase the prospects for a lithium refinery in Ghana—the government’s other key objective—the government should ensure Barari conducts a rigorous feasibility study, publish it and then hold a multistakeholder consultation to agree on subsequent actions.
Topic:
Tax Systems, Fiscal Policy, Lithium, Revenue Management, and Minerals
Political Geography:
Africa and Ghana

3. Liquidity Re-injection in the CEMAC Region: Balancing Effectiveness, Inflationary Pressures, and Economic Stability Prospects

Author:
Stephane Atangana
Publication Date:
12-2024
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
This policy brief examines the impact of liquidity re-injections by the Bank of Central African States (BEAC) since June 2024 (1, 2) and their role in revitalizing the CEMAC region’s economy. While these measures aim to stimulate bank financing, they occur in a context marked by persistent challenges such as low financial inclusion and economic disparities within the region. The analysis highlights the need for stronger coordination between monetary and fiscal policies to maximize the effectiveness of reforms. Such coordination would regulate inflation, support economic growth, and enhance resilience to asymmetric shocks. This policy brief offers concrete recommendations, including improving credit allocation mechanisms, increasing support for SMEs, and fostering closer collaboration between BEAC, national governments, and commercial banks. In conclusion, an integrated and coordinated approach is essential to building a robust, inclusive, and sustainable regional economy.
Topic:
Fiscal Policy, Regional Economy, Liquidity, and Bank of Central African States (BEAC)
Political Geography:
Africa

4. Tax financing options for new social protection instruments: The equity implications of taxing more to expand the South African social security system

Author:
Maya Goldman and Ntuthuko Hlela
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In this paper, we use a static fiscal incidence analysis model to evaluate the poverty and inequality impacts of using fiscal policy to finance expanded social spending in South Africa. We assess three methods to enhance the social protection system’s equity objectives: increasing the size and/or coverage of the existing Social Relief of Distress grant and introducing a universal or working-age basic income grant. The implications of financing these reforms are examined using four tax instruments: increasing the value-added tax rate, increasing personal income tax rates, reducing the personal income tax primary annual rebate, and introducing a surcharge on incomes. While we discuss behavioural effects, they are not included in the model. Our analysis indicates that an expansion of the social security system financed through increased taxation could substantially reduce poverty and inequality to varying degrees depending on the taxes and transfers used.
Topic:
Poverty, Inequality, Tax Systems, Fiscal Policy, Social Spending, and Cash Transfers
Political Geography:
Africa and South Africa

5. The sustainability of South African fiscal policy

Author:
Philippe Burger
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The public-debt-to-GDP ratio in South Africa increased from 26 per cent in the 2008/09 fiscal year to 73.9 per cent in 2023/24, raising fears that fiscal policy is not sustainable. This raises the question: did the government take steps to arrest the increase in the debt-to-GDP ratio and regain fiscal sustainability, and if so, why did they fail? Establishing fiscal sustainability can be done directly or indirectly. Doing it directly entails the government increasing the primary balance in reaction to higher debt levels. Hence, this paper presents a fiscal reaction function. The analysis shows that during the period in which the public-debt-to-GDP ratio rose, the primary balance did indeed react to an increased debt burden, but its level remained too low to arrest the increase in the public-debt-to-GDP ratio. The analysis also assesses whether fiscal fatigue set in, wherein the responsiveness of the primary balance to the debt burden is positive but eventually weakens. Some evidence for the presence of fiscal fatigue is present. One indirect approach to establishing fiscal sustainability is through the impact of expenditure and revenue on economic growth. Leaving revenue for further study later, this paper presents an adapted growth equation to investigate the impact on growth of general government investment and consumption expenditure, and of public (and private) corporation investment. While the effect of private sector investment is positive, neither general government nor public corporation investment has a statistically significant impact on growth. Furthermore, government consumption has a negative impact on growth.
Topic:
Investment, Fiscal Policy, Deficit, Sustainability, and Public Debt
Political Geography:
Africa and South Africa

6. Spillover effects of the recent US monetary policy shocks on the South African economy: The role of monetary and fiscal policy coordination

Author:
Guangling Liu and Marrium Mustapher
Publication Date:
11-2024
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This study examines how different policy mix regimes affect the impact of recent US contractionary monetary policy on South Africa’s inflation and business cycles. The study uses a small open economy New Keynesian Dynamic Stochastic General Equilibrium model with an integrated fiscal block to analyse these effects. Regime M (active monetary policy) is more effective at containing the spillover effects but leads to higher public debt, requiring larger future fiscal surpluses. The commitment to price stability under Regime M increases real interest rates, raising domestic debt service costs and the debt-to-GDP ratio. Regime F (active fiscal policy), in contrast, stabilizes debt more quickly but at the cost of higher inflation, as it does not use future surpluses to manage public debt. These spillover effects are more amplified under both Regime M and Regime F in the case of a complete exchange rate pass-through and a higher degree of trade openness, with Regime F exhibiting a stronger amplification effect.
Topic:
Foreign Policy, Economics, Monetary Policy, Inflation, and Fiscal Policy
Political Geography:
Africa, South Africa, North America, and United States of America

7. The Egyptian Financial Crisis: Implications for the region, and for Israel too

Author:
Eran Lerman
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Jerusalem Institute for Strategy and Security (JISS)
Abstract:
Egypt continues to play an active role in regional affairs, including the Aqaba emergency meeting on the Palestinian situation (February 26) and the ongoing effort to prevent escalation in Gaza. At the same time, Cairo is in the middle of a significant financial crisis. The effects of the war in Ukraine – specifically, grain shortages – brought the Egyptian pound to more than 30 to the dollar, up from 20 in November and 15 in early 2022, facilitated by deliberate government action in response to demands by the IMF. Inflation still soars, and so does youth unemployment. All this could destabilize a nation of 105 million on our border, with dire consequences.
Topic:
Financial Crisis, Conflict, Fiscal Policy, and Financial Stability
Political Geography:
Africa, Middle East, Israel, Egypt, and MENA

8. Rewarding allegiance: Political alignment and fiscal outcomes in local government

Author:
Christa N. Brunnschweiler and Samuel K. Obeng
Publication Date:
07-2023
Content Type:
Working Paper
Institution:
Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
Abstract:
We examine how local governments’ political alignment with central government affects subnational fiscal outcomes. In theory, alignment could be rewarded for example with more intergovernmental transfers, or swing voters in unaligned constituencies could be targeted instead. We analyze data from Ghana, which has a complex decentralized system that seeks to preclude political alignment effects. District Chief Executives (DCEs) are centrally appointed local administrators loyal to the ruling party, while district Members of Parliament (MPs) may belong to another party. A formula for central transfer distribution aims to limit the influence of party politics. Using a new dataset for 1994-2018 and a close election regression discontinuity design we find that despite this system, there is evidence of politically-motivated local fiscal outcomes. Aligned districts receive lower transfers and have lower district expenditure and internally generated funds, indicating swing-voter targeting. Results suggest that district fragmentations have weakened these effects. We also show strong electoral cycle effects, with mid-term peaks in fiscal outcomes.
Topic:
Elections, Fiscal Policy, Decentralization, and Local Government
Political Geography:
Africa and Ghana

9. Addressing the Tobacco Crisis in Nigeria: The Fiscal and Health Benefits of Excise Tax Reform

Author:
African Capacity Building Foundation (ACBF)
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
The African Capacity Building Foundation (ACBF)
Abstract:
Nigeria is grappling with a rising prevalence of tobacco use, particularly among the youth, leading to significant health and economic burdens. The study "The Economics of Tobacco Control in Nigeria: Modelling the Fiscal and Health Effects of a Tobacco Excise Tax Change in Nigeria" reveals that a substantial upward review of excise tax level on cigarettes alongside a change to the specific tax system yields the most significant gains in public health (measured by reductions in cigarette consumption and smoking prevalence) as well fiscal revenue (measured by increase in excise tax and other government revenues). Therefore, it is recommended that Nigeria implements tobacco control policy interventions that impose higher tax levels and specific tax systems.
Topic:
Reform, Tax Systems, Fiscal Policy, Tobacco, and Public Health
Political Geography:
Africa and Nigeria

10. Transformation through Inclusive Growth: Achieving a Balanced Recovery

Author:
Zambia Institute for Policy Analysis & Research (ZIPAR)
Publication Date:
11-2021
Content Type:
Commentary and Analysis
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
The Zambian National Budget for the year 2022 was announced by the Minister of Finance on 29th October 2021. This marked the first Budget of the newly elected United Party for National Development Government following the August 12, 2021 national election. As such, this represented the first formal statement of the new Government’s economic policy. While the Budget contains many transformative ideas, it is important to zoom in on the areas where caution is imperative and what those specific details means for the people the Budget is meant to serve, and for the whole economy. This paper therefore analyses the 2022 National Budget under the theme: ‘Transformation through Inclusive Growth: Achieving a Balanced Recovery’. The paper present insights into the key fiscal and macroeconomic priorities, debt management and international financing relations, the real sector policy options to stimulate the balanced and green recovery of the economy and taking development closer to the people. The paper also gives pointers for strengthening the governance environment for effective budget execution and for sidestepping the perils of the ambitious decentralisation programme.
Topic:
Governance, Budget, Economic Growth, Macroeconomics, Fiscal Policy, and Revenue Management
Political Geography:
Africa and Zambia