The government is set to enact laws to regulate use of petroleum revenues following continued oil discoveries in the country. National Treasury Cabinet Secretary Henry Rotich said the new regime would prevent oil incomes being used for items such as public sector wages. “Laws on managing revenue from resources have to be in place before you start exploiting them,” he said during the African Development Bank (AfDB)’s annual meeting in Rwanda last week. Delegates at the meeting heard that the dash to build infrastructure, and pressure from citizens for swift rewards from oil and gas discoveries, have pushed some governments to loosen policy. That has led to ballooning current account deficits, rising debt and fiscal shortfalls that threaten to take the shine off otherwise positive growth stories. Resource-reliant Ghana and Zambia show how star economic performers can quickly face the heat. Ghana’s cedi and Zambia’s kwacha have hit record lows against the dollar this year as rising spending has strained state finances.
“It’s as if we haven’t learnt anything about macroeconomic management,” said Mthuli Ncube, chief economist at the AfDB, echoing other delegates at the bank’s meeting. “The macro-policies are out of line, whether you are looking at budget deficits, current account positions, the debt positions and so forth,” he said.
Africa is the fastest-growing continent after Asia but it has a long way to go before its roads, railways, and schools or hospitals match infrastructure in other economies. As rapid economic growth cuts donor aid as a proportion of gross domestic product, governments have turned to international markets to finance capital or other spending, but their credibility among investors could quickly crumble if fiscal discipline is not instilled. “Initially, part of the investor appetite for sub-Saharan African sovereign debt was due to the fact that there was relatively little issuance, and that investors were becoming more attuned to the ‘Africa Rising’ story,” said Razia Khan, head of research for Africa at Standard Chartered bank in London.
