Finance policy
A fiscal stimulus to address the effects of the global financial crisis on sub-Saharan Africa
Investigating the effects of developed country fiscal stimuli on sub-Saharan Africa
Authors:
R. Barrell; D. Holland; D. Willem te Velde; National Institute of Economic and Social Research; One
Publisher:
Overseas Development Institute, London, 2009
Developed countries are addressing the current financial crisis with fiscal stimuli. This paper examines the effects of various stimuli on growth in the world and in developing countries. It examines the effects of providing an aid financed fiscal stimulus in sub-Saharan Africa (SSA). There is a brief literature review on aid, public expenditure and growth in Africa with a discussion of policy scenarios and looking at model simulations.
Key messages include:
- fiscal packages announced by developed countries will help to smooth income losses in SSA in 2009-2010 offsetting about a quarter of losses due to the financial crisis
- developed countries can support fiscal stimulus in developing countries through increased aid, for example in the form of budget support or Aid for Trade
- a model simulation of developed country fiscal stimulus and a US$20 billion SSA stimulus offset about half of the impact of the global financial crisis on growth in SSA
- if US$50 billion goes to debt relief in SSA, the initial growth effects are small but growth effects are larger later in the cycle
- a stimulus in SSA of US$50 billion has positive effects on global trade and world GDP
