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Ghost of finance mismanagement

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Public finance mismanagement has been a great concern for many economists, especially in Africa.

For a long time, public finance management principles have been thrown into the dungeon.

It is not surprising to see African countries suffering from high debts, improper procurement, misallocation of funds, and even the consumption of resources meant for citizens.

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As the African Union puts it, many governments and public institutions in Africa have made significant progress in the continuous improvement of public financial management, and these reforms are expected to continue.

In 2018, Africa’s average tax collection as a percentage of GDP was 16.5 percent.

Revenue collected in African states actually reaches the public in the form of public goods and services. Much gets lost to spending on “new” poorly planned “white elephant” projects, corruption and general waste.

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As for borrowing, recent increases in public debt in a number of African countries have “new” raised concerns about a lack of transparency and accountability.

Given Africa’s demographic and political trajectories, the challenges confronting its public finance management systems will only get tougher.

Addressing these problems will require more than technical fixes to operations in African treasuries. This is because, at their core, public finance management systems reflect societies’ implied fiscal pacts.

Thus, reforms should reflect the emerging electoral fiscal pact in African states. An important feature of this fiscal pact is the expectation that, to legitimately stay in power or win elections, politicians must invest in visible and attributable public goods and services.

In African democracies and non-democracies (electoral autocracies) alike, electoral competition (however imperfect) has created increased demand for roads, electricity, public schools, accessible healthcare, agricultural subsidies and extension services, social protection, and other public goods and services. The experiences of many African countries over the last two decades have strengthened this implied fiscal pact.

Prudence in public finance management is seen when countries face economic challenges like now. It tastes the governance structure and the fiscal structure.

Poor governance manifests itself when the relevant systems and structures do not function, or do not exist. Conversely, good governance is found where those systems and structures function as intended.

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