Third, there is a great deal of heterogeneity in the evolution of fiscal space across SSA countries. Fiscal space has narrowed for most countries in the region in 2015-16. In this context, the median increase from 2010-13 to 2015-16 in the number of tax years to fully pay the public debt was 1.1 years in countries with tighter fiscal conditions. These central figures mask the wide variation across countries. For example, in over one-third of the countries with narrowing fiscal space (that is 13 of 36) the increase in tax years is more than one standard deviation above the median. In Central African Republic, Mozambique, and the Republic of Congo the increase in the number of tax years exceeded 2.5 years. In contrast, it would take at most one tax-year to fully repay the general government gross debt position for some countries in the region (e.g. Botswana, Swaziland, and Lesotho).

Fourth, the empirical literature shows that institutions help reduce fiscal implementation gaps, fiscal indiscipline, and fiscal procyclicality (e.g. Lledó and Poplawski-Ribeiro, 2013; Calderon and Nguyen 2016). In turn, evidence shows that fiscal capacity —as proxied by tax effort— leads to better institutions (as it lowers corruption and red tape). This implies that some African countries in the post-2009 period can be trapped in an equilibrium of lower fiscal capacity and lower government quality that may hinder their ability to make fiscal institutions work (Baskaran and Bigsten 2013). Rules may help reduce cyclicality of fiscal policy and restore fiscal discipline; however, their design matters. About 21 countries in the region have numerical rules —either a combination of balanced budget and debt rules in most countries (e.g. Côte d’Ivoire and Senegal) or an expenditure rule (e.g. Namibia and Botswana). However, those rules do not account for the intertemporal nature of fiscal policy, fluctuations in commodity prices (at least for the commodity exporters with rules) and, by definition, they are rigid and tend to be procyclical (i.e. a feature of numeric targets). The evidence shows that the impact of fiscal rules on the cyclicality of fiscal policy depends on their design —that is, flexibility in design matters. Investment-friendly rules (i.e. shielding public investment from rule effects) are stronger in bad times and when the rule is enacted at the national level. Inclusion of cyclical adjustment features in spending rules also helps reduce procyclicality (Guerguil et al. 2017).

Finally, this paper has documented the narrowing of the fiscal space across countries in SSA. Calderon and Chuhan-Pole (2017) are currently examining the deep determinants of fiscal space for countries in the region. This analysis will enhance our understanding of whether structural features or complementary policies help explain the formation of fiscal space. The aim of this work is to help inform policy discussions on how to restore fiscal space in Sub-Saharan African countries.

# **References**

Anderson, Phillip R. D., Anderson Caputo Silva, and Antonio Velandia-Rubiano (2010) “Public Debt Management in Emerging Market Economies: Has This Time Been Different?” The World Bank Policy Research Working Paper WPS 5399, August.

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