The kinder, gentler IMF on African fiscal policy
Andy Berg writes to tell me about a new IMF policy note on fiscal policy responses to the current crisis in Sub-Saharan Africa and the big news is that the IMF now thinks there is a role for increasing fiscal deficits even in some of the word's poorest countries. As Andy puts it,
About 2/3 of the countries in Sub-Saharan Africa now have low-to-moderate risk of debt distress, the way we calculate it. There may be some scope for some fiscal stimulus in many of these countries. Part of the case for not adjusting too sharply is that scaling down investment projects can be quite disruptive; to do it well puts a lot of demands on fiscal institutions. We note the contrast with "scaling up" of public investments, which is institutionally much more demanding.
In countries with fiscal space, the IMF recommends ramping up spending on Infrastructure and social safety nets (and not cuts in taxes, which the paper says would be inequitable).
The IMF hasn't totally given up on fiscal prudence of course. The paper warns that in resource-based economies, where the shock is concentrated in one or two sectors, the fiscal stimulus is unlikely to put capital and labor back to work since inter-sectoral mobility will be limited. It also asks that any fiscal stimulus be reversible to prevent debt problems down the line.
Makes a lot of sense to me.