Public Finances

In 2008 the overall fiscal balance (including grants) of the group of net oil-exporting countries increased to 6.1 per cent in 2008, up from 4 per cent in 2007, mainly because of higher oil prices but also because of increases in production in some of them (but not in Algeria, Libya or Nigeria). The group of net oil-importing countries exhibited an overall deficit equivalent to 1.8 per cent of GDP in 2008, compared to a very small deficit in 2007 (0.3 per cent). The increase in the deficit of the net oil-importing countries reflects increases in fuel, fertiliser, and food subsidies in many countries as they attempted to mitigate the effects of high import prices. The continuation of generally good macroeconomic management and the maintenance of a high level of grants, including a portion provided in the form of debt relief prevented deficits from increasing even further. Projections for 2009 are dramatically different for these two groups of countries. Net oil-importing countries are expected to experience a further widening of their average deficit to 2.7 per cent mainly because of a decline in tax receipts as GDP growth slows. However, for the net oil exporters, the fiscal surplus in 2008 is expected to give way to a large deficit equivalent to 7.5 per cent of GDP mainly due to declines in oil prices and production (in some countries). Small improvements for both groups of countries are expected in 2010. The forecast for government spending in the oil-exporting countries assume that these large deficits can be financed by drawing on the surpluses accumulated in earlier years. However, it remains important for the oil exporters to continue investing in the types of project that promote diversification of their economies to reduce dependence on their oil sectors. For the poorer oil-importing countries, debt relief and other forms of financial support from international financial institutions and their bilateral development partners will be particularly important as they attempt to maintain positive GDP growth during the current global recession. For countries where inflation has increased to double-digit levels, monetisation of the increase in these projected deficits would be problematic. There is a clear need to improve domestic resource mobilisation in most African countries and the awareness of the importance of this agenda is growing.