Policy toward fiscal rules is an important issue in the countries of the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia).
... See More + According to a rough estimate, the countries with rules (all but North Macedonia) have complied with their debt and overall-deficit rules a little more than half the time. An online survey, conducted for this paper, suggests that public understanding of the rules is limited, which may reduce the political pressure for compliance. To get debt down to prudent levels, Albania and Montenegro will need a strong commitment to complying with their fiscal rules and will often have to do more than their deficit rules require. The following principles should guide future policy toward fiscal rules: more emphasis should be given to ensuring that fiscal rules are widely understood and enjoy the support of a broad range of stakeholders; policy toward the rules should be consistent with accession to the European Union, but the rules should be simpler than the European Union's and the debt limits lower; limits in rules should not be mistaken for targets; and public financial management should be improved to support the implementation of rules.
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Policy Research Working Paper WPS8990 AUG 20, 2019
This paper analyzes the procyclicality of fiscal policy on the tax and spending sides in a sample of 116 developing countries between 2000 and 2016.
... See More + About 20 percent of the countries in the sample switched from procyclical to countercyclical policy stance. In Sub-Saharan Africa, 30 of 39 countries remained caught in the procyclicality trap and the region has the highest degree of procyclicality. The Middle East and North Africa region switched from a countercyclical policy stance to a procyclical one over time. The Europe and Central Asia and Latin America and the Caribbean regions significantly reduced the degree of procyclicality. The main economic variables that affect procyclicality are financial depth, tax base variability, and natural resource dependence. In line with the political economy literature, the perception of corruption, social fragmentation, and inequality in resource distribution are positively associated with procyclicality. The findings also show that the quality of fiscal institutions is associated with procyclicality; countries with fiscal rules have smaller procyclical bias, but the effect is not homogeneous; and higher degrees of expenditure rigidity are associated with lower procyclical bias. The study finds asymmetric policy stances along the business cycle, with procyclicality being more pronounced during recessions. Similarly, the political cycle affects procyclicality, as procyclical bias increases in electoral years. From the tax management perspective, procyclical bias is still present, but there are significant changes: most of the political economy variables lose significance; the resource-dependence variable is not significant; external credit availability reduces procyclicality; tax base variability increases procyclical bias; and expenditure rigidity is no longer significant, but fiscal space becomes determinant of procyclical bias.
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Policy Research Working Paper WPS8963 AUG 06, 2019
This paper examines how fiscal rules, exchange rate regimes, and institutional quality affect the cyclical behavior of fiscal policy (how government spending responds to fluctuations in gross domestic product).
... See More + The analysis is performed on a panel of 153 advanced, emerging, and developing countries over 1993-2015 using local Gaussian-weighted ordinary least squares and two-stage least squares estimators. The findings show that the adoption of fiscal rules alone is not sufficient to promote countercyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality, especially in countries with flexible exchange rate regimes rather than in countries with fixed exchange rates. The analysis also finds that the disciplining effect of fiscal rules depends on the type of rule.
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Policy Research Working Paper WPS8964 AUG 06, 2019
The 2019 Africa Country Policy and Institutional Assessment (CPIA) report covers the period January to December 2018. Over this period, the average quality of policies and institutions in International Development Association (IDA)-eligible countries remained unchanged, amid decelerating growth across the region.
... See More + The overall CPIA score for IDA countries in Sub-Saharan Africa was 3.1 in 2018, the same as 2017, reflecting the slow progress in improving the quality of policy and institutional frameworks in the region. Partly reflecting this uneven performance, per capita income growth has stagnated in recent years, and poverty headcounts remain elevated. Accelerating growth and the pace of poverty reduction in the region’s IDA countries will necessitate faster structural transformation along with the accumulation of fundamental capabilities in human capital and institutions and some degree of macroeconomic stability. Against this backdrop, the 2018 CPIA results reinforce the call for IDA countries in Sub-Saharan Africa to accelerate the pace of policy and institutional reforms to foster rapid economic growth and poverty reduction. Three areas require immediate attention. First, the quality of debt management needs to be strengthened. The buildup in public debt has continued in the context of weak debt management systems. The necessary improvements in the effectiveness of debt management need to be implemented. The number of IDA countries at high risk of debt distress or in debt distress increased further in 2018. Strong debt management capacity can enhance debt transparency, minimize contingent liabilities, render fiscal frameworks more conducive to effective countercyclical policies, and mitigate the pressures that lead to rapid debt accumulation. Over time, improved debt management would help strengthen macroeconomic stability. This year’s report focuses on debt management. Second, business regulatory reforms need to accelerate to support private sector development and job creation. Due to the slow pace of reforms, IDA countries in Sub-Saharan Africa are not converging toward the best business regulatory performance in some areas critical for private sector development including, most notably, in getting electricity. The average cost to obtain an electricity connection remains prohibitively high in many countries. Third, sustained efforts are needed to improve domestic revenue mobilization. In many countries, the yield of the domestic tax system has declined, as widespread exemptions narrowed the tax base amid weak capacity in customs and low compliance of taxpayers. Rationalizing tax exemptions and improving the efficiency of current tax systems could yield more revenue for countries to finance investments in human capital and infrastructure and ensure debt sustainability. Enforcing the rule of law, which can effectively protect property rights, strengthening accountability and transparency mechanisms, and vigorously combatting corruption remain critical.
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The 2019 Africa Country Policy and Institutional Assessment (CPIA) report covers the period January to December 2018. Over this period, the average quality of policies and institutions in International Development Association (IDA)-eligible countries remained unchanged, amid decelerating growth across the region.
... See More + The overall CPIA score for IDA countries in Sub-Saharan Africa was 3.1 in 2018, the same as 2017, reflecting the slow progress in improving the quality of policy and institutional frameworks in the region. Partly reflecting this uneven performance, per capita income growth has stagnated in recent years, and poverty headcounts remain elevated. Accelerating growth and the pace of poverty reduction in the region’s IDA countries will necessitate faster structural transformation along with the accumulation of fundamental capabilities in human capital and institutions and some degree of macroeconomic stability. Against this backdrop, the 2018 CPIA results reinforce the call for IDA countries in Sub-Saharan Africa to accelerate the pace of policy and institutional reforms to foster rapid economic growth and poverty reduction. Three areas require immediate attention. First, the quality of debt management needs to be strengthened. The buildup in public debt has continued in the context of weak debt management systems. The necessary improvements in the effectiveness of debt management need to be implemented. The number of IDA countries at high risk of debt distress or in debt distress increased further in 2018. Strong debt management capacity can enhance debt transparency, minimize contingent liabilities, render fiscal frameworks more conducive to effective countercyclical policies, and mitigate the pressures that lead to rapid debt accumulation. Over time, improved debt management would help strengthen macroeconomic stability. This year’s report focuses on debt management. Second, business regulatory reforms need to accelerate to support private sector development and job creation. Due to the slow pace of reforms, IDA countries in Sub-Saharan Africa are not converging toward the best business regulatory performance in some areas critical for private sector development including, most notably, in getting electricity. The average cost to obtain an electricity connection remains prohibitively high in many countries. Third, sustained efforts are needed to improve domestic revenue mobilization. In many countries, the yield of the domestic tax system has declined, as widespread exemptions narrowed the tax base amid weak capacity in customs and low compliance of taxpayers. Rationalizing tax exemptions and improving the efficiency of current tax systems could yield more revenue for countries to finance investments in human capital and infrastructure and ensure debt sustainability. Enforcing the rule of law, which can effectively protect property rights, strengthening accountability and transparency mechanisms, and vigorously combatting corruption remain critical.
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This Country Policy and Institutional Assessment (CPIA) 2018 brief is for Central African Republic and covers the period January to December 2018.
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