to organize the scaling up of programs to the existence of critical physical

To organize the scaling up of programs to the

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to organize the scaling up of programs, to the existence of critical physical infrastructure, to the governance capacity of a government to use resources well, to the strength of public expenditure management systems. Ultimately, these are less issues of fiscal space, and more ones of the potential inefficiencies associated with a rapid scaling up of expenditure, and the implied reduced cost-effectiveness of such spending. But these various factors may preclude the effective utilization of fiscal space, and may need to be dealt with either before, or at least pari passu with the efforts to scale up the delivery of services. The impact of sound macroeconomic policy management: Fiscal space can also be created by the pursuit of consistent and effective macroeconomic policies. Some of the volatility in external assistance experienced by many countries has arisen from the failure to implement agreed macroeconomic policy programs. This has resulted in a cessation of donor assistance, with the effective cutbacks in fiscal space dramatically weakening a government’s ability to maintain the financing of its level of services. Malawi and Zambia illustrate this problem, where there was high volatility of grants during the period 1990-2003 as a result of macroeconomic policy slippages. The effects of the recent debt-cancellation initiative: A number of LICs will benefit from the effects of the recent G8 initiative in Gleneagles, Scotland to cancel all debt obligations to the multilateral financial institutions. In the cases of Zambia, Malawi, and Tanzania, the nominal debt to GDP ratios will fall sharply (from 65, 82, 57 percent, respectively, to 10, 20, and 22 percent, respectively). Obviously, there will be some additional fiscal space afforded and this be important, particularly because is a permanent, predictable stream of resources. But because much of the debt was already on concessional terms, and because much of the debt service was “effectively” financed by new loans from the multilateral agencies, the annual additional resources available, on a 10
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flow basis to these countries as a consequence of the debt cancellation initiative will not dramatically enhance the capacity of countries for new spending programs. 3 This initiative will also significantly reduce the net present value of existing debt relative to such economic aggregates as GDP, exports, or government revenues. Governments will now also have the opportunity to use the fiscal space for creating fiscal infrastructure that can enhance growth prospects, achieve the MDGs , and break out of poverty traps. But past experience with borrowing for unproductive projects highlights the need for any new projects to be financed by borrowing to be carefully appraised in order to ensure they realize high rates of return. Otherwise, these LICs may quickly find there future borrowing capacity to be once again compromised.
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  • Spring '14
  • KevinP.Moenkhaus

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