ISTANBUL –To minimize the impact of the global financial crisis on their economies, African governments should increase their spending to stimulate domestic demand through lowering taxation and increasing government public expenditures, Finance Minister James Musoni has said.
Increased domestic demand will lead to growth and achievement of the Millennium Development Goals which is the ultimate measure of success for countries.
“Governments must act quickly to ensure the stimulus is introduced at the appropriate moment,” he said, adding that this can be assisted by greater coordination on the part of donors by reducing bureaucracy and barriers to the quick release of funds.
He was addressing a cross-section of economic experts and civil society at a seminar session under the topic “Fiscal Policies for the Crisis and Recovery,” on Saturday in Turkey’s capital Istanbul.
Musoni observed that when the global financial crisis began to emerge, the expectation was that low income countries would escape the turmoil.
“With time, it has become clear that this expectation was not realistic –the crisis has begun to be felt in Africa,” he said, pointing out that for each 1 percent decline in growth in OECD countries, the decline in the growth observed in Sub-Saharan Africa countries is around 0.42percent.
“Fiscal stimulus is needed to ensure growth continues in countries that have fostered good economic environment in recent years,” he citing Rwanda’s increase in budget spending by 24 percent this year to counter spill-overs from the global financial crisis.
This has facilitated the economy to recover as more economic activity is taking place now.
Musoni argued that “Business as usual” macroeconomic policies targeting small deficits allowing flexibility in the exchange rate is not a satisfactory strategy, as it would result in contraction of the domestic demand along with a decline in export revenues and a fall in international tax revenues.
“We have heard good speeches and statements being made since the crisis started but how they translate into action is still a problem.”
The session which was chaired by renowned fiscal expert, Robert Chote, the Director at the Institute of Fiscal Studies in the United Kingdom, stressed the need for countries to sustain stimulus package in spite of signs of global recovery.
Other panelists included Stanley Fischer , the governor of Bank of Israel and James Flaherty , the Minister of Finance from Canada and Alexandro Werner , the vice Minister of Finance and Public Credit, Mexico who also discussed their experiences.