Analysis of Budget Imbalance Dynamics in Kenya

Kenya needs substantial and sustained fiscal consolidation to create fiscal space for financing the government’s election pledges, the Vision 2030 development projects, and sustainable development goals. However, the government has found it hard to sustain its fiscal consolidation attempts. This study investigates the fiscal consolidation constraints that act through the budget imbalance dynamics in Kenya using the Olivera-Tanzi effect approach. The study covers the period 2000-2015 using time series data and employs three Auto-regressive Distributed Lag (ARDL) error correction models in the analysis. The study showed that a rise in the general price levels in the economy, adjustment of minimum wages, rise in perceived levels of corruption in the public sector and the political budget cycles (occurrence of a general election) worsen the budget imbalances (deficits) thus constrain fiscal consolidation efforts in Kenya. The study also demonstrated that budget imbalance dynamics in Kenya could partly be explained by the Olivera-Tanzi proposition. The study recommends measures to reduce the fiscal imbalance gap in Kenya, which include controlling both supply and demand side inflationary pressure and dealing with rent seeking behavior in the public sector

The Global Financial Crisis and Developing Countries: Phase 2 Synthesis

When the global financial crisis broke out in earnest in September 2008, it quickly became clear that developing countries would also be affected, but that the impacts would vary markedly. The Overseas Development Institute (ODI) coordinated a multi-country study over January-March 2009 involving developing country teams in 10 countries. This showed that, while the transmission mechanisms were similar in each (trade, private capital flows, remittances, aid), the effects varied by country, and much was not yet visible. As such, further country-specific monitoring was required. Most findings suggested that, as a result of time lags, the worst effects were yet to come. This synthesis of the effects of the global financial crisis on developing countries updates the description of the economic and social situation during the course of the crisis in 11 countries

Can Africa's Saving Collapse Be Reversed?

Private saving in Sub-Saharan Africa declined from more than 11 percent of disposable income in the 1970s to less than 8 percent in the 1980s and only partially recovered (to less than 9 percent) in the 1990s. This article analyzes the determinants of private saving in Sub-Saharan Africa, seeking to explain the region's dismal performance and identify policies that could help to reverse the region's decline in saving. The analysis shows that in Sub-Saharan Africa causality runs from growth to investment (and perhaps to private saving), whereas a rise in the saving rate Granger-causes an increase in investment. Foreign aid Granger-causes a reduction in both saving and investment, and investment also Granger-causes an increase in foreign aid. The empirical analysis of private saving in Sub-Saharan Africa and other regions over 1970–95 suggests that private saving in Africa can be explained by standard behavioral models. According to these models private saving in Africa lags behind that in other regions (most notably, the high performing Asian economies) because of the region's lower per capita income, high young-age dependency ratio, and high dependence on aid. The combined effects of these factors substantially outweigh Africa's advantage from its lower public saving and higher government consumption. Finally, analysis of the experiences of Kenya, Zimbabwe, and Botswana provides further insight into the saving process in Sub-Saharan Africa. Copyright The Author 2000. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: [email protected], Oxford University Press.