SADC must tighten fiscal policy

23 July 2019 | Africa

Finance minister Calle Schlettwein has lamented the financial struggles currently faced by the African continent, adding that economic outcomes are far from uniform in sub-Saharan Africa.

Oil exporters, he said, are still dealing with the legacy of the largest real oil price decline since 1970 and debt levels are rising in some countries, while other countries are suffering from internal conflicts.

Speaking at the at the opening of the SADC Committee of Ministers of Finance and Investment Meeting in Windhoek on Friday, Schlettwein emphasised that global economic growth has weighed down on the SADC region with economic growth estimated to have improved marginally from an average of 2.9% in 2017 to an average of 3.1% in 2018.

He added that annual inflation rates eased in general, with only three member states recording a double-digit level rate and added that in the fiscal sector, debt and vulnerabilities remain elevated in some countries. According to him, weaknesses in public balance sheets are also weighing on countries' external positions, with reserve buffers below levels typically considered adequate in more than half of the countries in the region.

He also noted that the size of the current account deficit widened in 2018 as the region is highly vulnerable to terms-of-trade shocks, and these have a large impact on current account positions, mainly through the trade balance.

“In this context, avoiding policy missteps that could harm economic activity should be the main priority. Macro-economic and financial policy should aim to guard against further deceleration where output may fall below potential and to ensure a soft landing where policy support needs to be withdrawn. At the national level, monetary policy should aim to keep inflation on track toward the central bank's target and to keep inflation expectations anchored.

“Fiscal policy will need to manage trade-offs between supporting demand and ensuring that public debt remains on a sustainable path. In particular, where fiscal consolidation is needed, policy should calibrate its pace to secure stability without suppressing near-term growth and harming programmes that protect the vulnerable,” he said.

Schlettwein also pointed out that as such, policies should aim at diversifying economies including the identification of new sources of growth.

“In the fiscal sector, policies should aim at domestic revenue mobilisation and expenditure rationalisation by focusing public investment decisions on areas that are growth-oriented rather than consumption-oriented. These efforts require the region to act collectively and devise and implement medium and long term measures,” he urged.