Economic growth was robust in 2017,above expectations. This was thanks to favorable externaldevelopments in the region, continued expansionary fiscalpolicy, and growth in the gold sector. Real GDP growthreached 4.6 percent in 2017, up from 4.3 percent in 2016,and the fastest rate since 2013. During the first 4 monthsof 2018, growth slowed to 1.3 percent, from a year earlier,as a result of the contraction in gold production; excludinggold, output grew at 2.5 percent, up from 2.3 percent overthe same period in 2017. In short, the economy appears tohave fully recovered from the recent shock brought about bythe fall in oil prices. Investment and consumption droveoutput growth last year. Sources of growth appear to havebeen balanced. Growth was mainly driven by consumption andinvestment, with: private consumption growth returning topositive territory, after two consecutive years ofcontraction and high rates of public and private investment.Net exports also made a positive contribution, thanks torobust export growth. With the regional downturn now over,it is time the authorities should seize the opportunity forfiscal reform. First and foremost, action is required on thefiscal side to increase discipline and policy quality,transparency and consistency. In the past years, theauthorities have deliberately delayed planned fiscalconsolidation to accommodate the external shocks. As aresult, public debt has remained elevated and fiscal buffershave been depleted. Moreover, fiscal discipline (in thecontext of relaxed targets) has been achieved at the cost ofad hoc measures, which entail reduced spending efficiency.It is now time to reverse this trend through implementingthe recently adopted fiscal rule, tax administration reformand concrete measures to contain recurrent spending (topreserve room for investment). Additional steps to improvespending quality, include ensuring that planned amendmentsto the Public Procurement Law safeguard best internationalpractice and that steps are taken to improve publicinvestment management. In the long run the core challenge isto increase overall productivity in the economy. Creatingand preserving fiscal space for investment in infrastructureis key, including via reforming energy tariffs. Significantlong-term payoffs can also be expected from implementing theambitious digital agenda under the Taza Koom flagshipprogram. The Special Focus section of this report highlightsthe main challenges the country will face in this regard.
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