Credit AI-generated
Credit AI-generated
Credit AI-generated
Credit AI-generated
A recent regional seminar on public investment management, bringing together officials from 21 Sub‑Saharan African (SSA) countries[1], revisited a critical but often misunderstood concept: fiscal space for capital expenditure. The discussions revealed a persistent gap in understanding across countries; should fiscal space be treated as a residual outcome of budget negotiations, or as an explicit macro‑fiscal constraint that governs investment decisions ex ante?
Evidence from recent Public Investment Management Assessments (PIMAs) suggests that, in practice, fiscal space is rarely operationalized in a systematic way. In most countries, medium‑term fiscal frameworks (MTFFs) do not clearly distinguish between spending for ongoing investment projects and space available for new projects. As a result, capital budgets tend to be driven by project lists rather than by an explicit assessment of what is fiscally affordable over time.
A Top‑Down Constraint, Not a Bottom‑Up Residual
A central message of the PIMA framework is that fiscal space is a top‑down constraint. The overall financial envelope must take precedence over sectoral project aspirations. Public investment strategies and plans should be costed, aligned with the macro‑fiscal framework, and explicitly confront investment needs with available resources.
This approach rejects the notion of “unlimited needs” often reflected in sectoral wish lists. Bottom‑up aggregation of projects, disconnected from fiscal constraints, leads almost inevitably to chronic over‑programming, accumulation of unfunded projects, and growing implementation arrears. Fiscal space must be determined before project selection—not after.
Importantly, fiscal space must also cover the full life cycle of projects. Beyond construction costs, it must account for operation and maintenance expenditures. The systematic underfunding of maintenance remains a major driver of rapid capital deterioration and low returns on public investment. In addition, fiscal space assessments should incorporate existing multi‑year commitments and contingent liabilities arising from public‑private partnerships (PPPs), state‑owned enterprises (SOEs), and subnational governments. Ignoring these obligations leads to a systematic overestimation of available fiscal space.
Country Experiences in SSA: Lessons from Practice
The recent seminar on PIMA showed that, except for two of the 21 countries represented at the seminar - Cameroon and Niger - most SSA countries have yet to start estimating fiscal space for capital expenditures. This is mainly due to a lack of understanding regarding what fiscal space means and how it can be measured. Cameroon and Niger have adopted a sequenced approach to estimate fiscal space for capital spending. Yet, they still face significant challenges, like other SSA countries: weak links between medium‑term frameworks and annual budgets, systematic overestimation of future resources, accumulation of unfunded projects, chronic under‑budgeting of maintenance, and circumvention of budget constraints through PPPs, SOEs, and off‑budget financing.
Cameroon provides a concrete illustration of how fiscal space for capital expenditure can be operationalized. In recent analytical work, the results highlight structural challenges. Most remaining commitments rely on external funding. Execution rates for externally financed projects are significantly lower than for domestically financed ones, and undisbursed commitments continue to accumulate. Over the medium term, fiscal space remains negative, reflecting a structural inability to honor existing commitments within planned time limits. While the analytical approach aligns with international standards, it is applied largely ex post, after commitments have already accumulated, rather than as an ex-ante filter.
Strengthening fiscal space of public investment in Sub-Saharan Africa
In SSA countries, fiscal space for capital expenditures can be more effectively determined by recording and considering multiyear commitments, ensuring precise annual authorizations, enhancing project investment planning with PPPs and SOEs, conducting regular portfolio evaluations, and minimizing undistributed allocations. Since most SSA countries rely on external funding for capital spending, it is vital to tie counterpart funds for donor projects to a thorough financial sustainability analysis.
The fiscal space for public investment is real and must be assessed with credibility, rather than being dismissed as imaginary. It should consider exogeneous shocks that rely on realistic assumptions and are supported by the MTFF covering both domestic and external resources.
Fiscal space should function as a binding filter for project selection. Economic and technical appraisal, while necessary, is not sufficient if a project cannot be credibly funded. Only projects compatible with the available fiscal space should enter the budget. Strengthening project selection is also essential. Projects should be chosen under robust, independent governance with minimal political involvement.
Conclusion
Fiscal space for capital spending is neither a residual outcome nor a political variable. It is an explicit macro‑fiscal constraint that must be defined ex ante, integrated into the MTFF, and applied across the full investment life cycle. While some SSA countries have begun to introduce reforms to structure fiscal space more rigorously, common structural constraints remain: limited domestic revenue mobilization, dependence on external financing, weak project quality, low execution capacity, and mounting investment backlogs. Strengthening public investment management offers one of the most powerful levers available to countries in the region to estimate fiscal space, restore its credibility, and support sustainable development trajectories.
[1] Benin, Burkina Faso, Burundi, Cameroon, Central African Republic, Republic of Congo, Union of Comoros, Côte d'Ivoire, Democratic Republic of Congo, Chad, Côte d'Ivoire, Gabon, Guinea, Guinea-Bissau, Madagascar, Mali, Mauritania, Niger, São Tomé and Príncipe, Senegal, and Togo.
