Fiscal Space for Children and Human Capital in Eastern and Southern Africa: Options and Strategic Entry Points to Address Investment Gaps in 16 Countries

Abstract

UNICEF initiated a multi-country initiative to better understand the dynamics of investing in human capital in the Eastern and Southern Africa region (ESAR). The project sought to identify potential opportunities for governments to increase expenditure on the sectors that matter most for children and to close critical investment gaps while maintaining fiscal sustainability (through fiscal space analyses), as well as to pinpoint entry points for UNICEF to more effectively influence government spending decisions (through political economy analyses). In total, fiscal space and political economy analyses were carried out in 16 countries in ESAR between 2016 and 2018.

Drawing on information from the country studies as well as from global databases, four key findings emerge:

1. Investment in core human capital sectors is expected to slightly decrease in ESAR in the near term, although there are significant variations across countries.

2. All countries have at least one very strong option to boost related investments – reprioritizing the budget, increasing domestic revenue and improving the efficiency of spending are the most promising avenues, while attracting greater foreign aid and cracking down on illicit financial flows are good approaches in sub-groups of countries.

3. Each fiscal space opportunity faces strong headwinds, which range from the challenges of influencing the politics that underlie the budget process to the complexities of strengthening tax administrative capacity and stifling corruption.

4. There are many opportunities for UNICEF to support the scaling up of child-focused investment throughout the budget cycle as well as by supporting improved budget transparency and accountability practices.

In addition to presenting fiscal space country profiles that can form the basis of national financing strategies, the report identifies specific entry points for UNICEF and partners to alter investment trajectories and hence transform children’s lives and the economic and social outlooks of their countries.

Keywords: fiscal space, revenue, foreign aid, spending efficiency, borrowing, debt restructuring, fiscal savings, illicit financial flows, social sector investment, human capital

JEL Classification: H2, H3, H5, H6