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The Kenyan Attiya Waris, observer to the UN Tax Committee, and Vallarie Yiega from Nairobi School of Law describe how Covid-19 is changing African Governments’ Fiscal Policies.
Bild: von Will Boase Cashless payment systems like "MobileMoney" show their benefits under COVID-19.
The IMF has argued that Covid-19 has exposed weak healthcare systems and inadequate social welfare programs and shifted fiscal policies to a people-centered approach of protecting the vulnerable. The question that then arises is how have African governments used fiscal policies to cushion the vulnerable during this crisis? What are they doing right and what are they doing wrong and what more do they need to do?
In the case of Kenya, a Covid-19 fund set up by the government has raised close to four billion Kenyan Shillings (about 37 million US-Dollars) to supply medical equipment, give cash transfers, and other donations to the most vulnerable. The Tax Laws (Amendment) Bill 2020 was passed giving 100% relief to those earning less than Shs. 24,000 per month and reducing tax rates across each bracket by 5%. It also includes lower tax rates on corporate income from 30% to 25% and VAT from 16% to 14%. Testing and quarantine at government facilities were also made free after public outcry.
Other African countries are relying on cash transfer programs to put money in the hands of the vulnerable. Burkina Faso has set aside $10 million to be sent to fruit and vegetable sellers. Madagascar despite its poor public health response, has targeted 150,000 households to receive 27 US-Dollars each. Egypt famed for Takaful and Karama has introduced another program targeting 1.5 million workers in sectors disrupted by Covid-19 to receive 500 Egyptian Pounds (about 30 US-Dollars) per month.
South Africa has extended the universal insurance fund to cover companies and employees affected by the temporary closure of the businesses. The fund will pay for the salaries of employees.
African countries are heavily dependent on external financing to combat Covid-19 due to underdevelopment, debt distress, and a shrinking economy. Tunisia has received $745 million from the IMF and €18.3 million from the International Bank for Reconstruction and Development. Nigeria has received $3.4 billion from the IMF, $21.4 million from the US, and $288.5 million from the Africa Development Bank. The dependency is worrying as donors and creditors such as the IMF have been flagged as undermining the sovereignty and democratic processes in African countries.
With the uptake of debt to fight Covid-19, conversations on debt relief in the form of suspension, freezing, or cancelation should not be forgotten. Additionally, this is the time to ensure any new debt taken on is sustainable and has fair terms. Principles of fiscal legitimacy such as transparency and accountability should be emphasized from sourcing of external financing, allocation, and spending. Parliament, courts, civil society, and independent third parties should be responsible by being involved in auditing and evaluating compliance with fiscal responsibility requirements.
In my book Financing Africa, I warn that excessive reliance on external financing could lead to constrained fiscal space. African governments should tailor fiscal policies to cater for the long term. This includes the possibility that the current crisis could be the new normal. Additionally, the sustainable development goals should remain a focus for governments as attaining them would have seen the continent better placed to combat the pandemic.
Covid-19 has placed the people at the center of the African governments' fiscal policies. However, there is more to be done to improve the fiscal legitimacy of African countries. Improving social spending will ensure the people are sheltered when future disasters emerge.
An African proverb states: “If you want to go fast, go alone. If you want to go far, go together.” It is crucial as we transition through an emergency period whose end is unclear that we leave none behind and that we ensure that the measure of success if financial stability and improvement of living standards of our most vulnerable. However, this will only be successful if we go together carefully.
Attiya Waris is the only Professor of Fiscal Law and Policy in East Africa. She teaches at the University of Nairobi where she chairs the Fiscal Studies Committee; at the University of Rwanda, and at the Centre for Human Rights at the University of Pretoria. She is an Observer to the UN Tax Committee. Vallarie Yiega is a final year law student at the University of Nairobi School of law and a Research Assistant at the Committee on Fiscal Studies.
