Fighting inefficiencies in public spending: Africa’s next battle?

Rado Ratovonarivo — Mon, 16 Jan 2023 18:00:00 +0000

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Newly installed solar panels at a health clinic in Sierra Leone

UNOPS

Aerial view of newly installed solar panels at a health clinic in Sierra Leone. © UN Office for Project Services (UNOPS)

By Liwaaddine Fliss

A number of African countries continue to face challenges while working toward the realization of the Sustainable Development Goals (SDGs). A lack of financial resources is contributing to their struggles, compounded by inadequate spending patterns depriving the continent of the resources it needs for its development. Now more than ever, African countries need to urgently rein in wasteful public spending and focus on boosting activities to tackle a tepid COVID-19 recovery and to put the SDGs back on track.

A powerful enemy carrying out a multi-pronged assault on the continent

In addition to illicit financial flows that deprive Africa of more than 3.7 per cent of Gross Domestic Product (GDP) per year and inefficient tax incentives that take away 2.5 per cent of GDP, Africa is registering an average loss of more than 2.5 per cent of its GDP per year to inefficiency in public spending. This inefficiency took hold because of multiple factors.

First is the government procurement system, which has been facing challenges ranging from lack of transparency and accountability to corruption. In the health sector alone, corruption is causing an annual loss of nearly US $9.5 billion in Africa, reducing people’s ability to access basic health services.

Rigidities in wages and entitlements in countries where these financial commitments make up a significant portion of government expenditures, as well as deficiencies in public institution processes, are also playing a role. According to the International Monetary Fund (IMF), the quality of public institutions significantly influences the efficiency of public spending and resource mobilization.

As a result, public spending inefficiency in Africa is high compared to other regions and is present across multiple sectors. In education and infrastructure, data between 2000 and 2017 show that this inefficiency contributed to a loss of more than US $40 billion per year. In health, an annual loss of US $28 billion was registered, which lowered life expectancy in Sub-Saharan Africa by more than ten years.

Combating inefficient spending is as important as generating revenues

Overall, regarding the efficiency of public spending, African countries have a lower average score [From 0 (least efficient) to 1 (most efficient). The methodology of calculating the score is detailed in the publication "In Search of Fiscal Space in Africa: The Role of the Quality of Government Spending"] of 0.585 compared to 0.825 for other developing countries. This suggests that if public spending is more efficient, African countries could achieve the same output with 41 to 48 per cent fewer resources and double their performance.

To turn the tide, African countries have been trying to boost domestic resources, focusing their efforts on revenue collection, including through tax increase measures. This approach has been leveraging initiatives to increase tax rates and widen the tax base, shifting to Value Added Tax (VAT) and strengthening the capacity of tax revenue authorities.

This domestic resource mobilization strategy is, so far, falling short, contributing only to a modest increase in tax revenues of a little over 16.5 per cent of the GDP in 2019. African countries must explore other alternatives, including improving public expenditure management.

Since it goes beyond the process of allocating funds, tackling inefficiencies in public spending requires a well-drawn-out battle plan that looks at the multi-dimensional aspect of the challenge.

Marshalling the impetus to fight and developing the strategies to win

African countries should look at strengthening governance across public institutions. With IMF research suggesting such initiatives could reduce inefficiency in public spending, African countries could mitigate losses, potentially recovering the equivalent of more than 50 per cent of their returns on investments for infrastructure.

Strengthening the governance of public expenditure management while aligning it with other frameworks and systems, such as those for debt management and investment promotion, is also vital. This is particularly important to avoid a vicious debt cycle when borrowed funds invested in infrastructure projects are not properly managed.

Africa should also leverage e-Procurement services to increase transparency and accountability, curb corruption, promote competition, lower costs and reduce transaction time for public procurement activities.

Addressing rigidities in wages and entitlements should be part of the solution as well. These initiatives could identify potential savings to be re-purposed for development activities, such as increasing social protection for vulnerable groups, while reducing budget-hungry spending, like cross-cutting energy subsidies.

Africa is at a crossroads where it needs to be decisive to stop a haemorrhage of resources from depleting its capacity. A sensible approach African countries could take is to adopt strategies that prioritize efficiency by trimming superfluous public expenditures. This will increase the countries’ budget portfolio, boosting their capacity to invest resources toward improving the quality of life of their people.

This next battle is one that Africa should fight. It is a battle Africa can win.

The author is a Programme Management Officer in the policy analysis and coordination team of the Office of the Special Adviser on Africa at the 51�Թ�.

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Office of the Special Adviser on Africa - accountability

Fighting inefficiencies in public spending: Africa’s next battle?

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By Liwaaddine Fliss