By Clara Nwachukwu
Short-term support measures being adopted by countries in sub-Saharan Africa (SSA), comprising Central, Eastern, Southern and Western Africa, to cushion emerging shocks are instead exacerbating their economic woes.
Such measures, including tax cuts, untargeted food or fuel subsidies, and price controls on specific goods, while being necessary they said, have however, added to fiscal pressures amid growing debt vulnerabilities, forcing governments into difficult tradeoffs.
These are the views of the Managing Director, International Monetary Fund (IMF), Ms. Kristalina Georgieva, and the European Commissioner for International Partnership, Ms. Jutta Urpilainen.
This is contained in a Joint Statement issued by the duo yesterday at the Eleventh African Fiscal Forum, themed: “Building a Resilient Africa”.
The two-day Forum, being held virtually, attracted delegates including Ministers of Finance and Social Affairs, other government officials, and representatives from civil society.
The statement reads in part: “Over the past three years, sub-Saharan African countries have confronted large adverse shocks that have led to a sharp deterioration in living conditions, including the COVID-19 pandemic, food and energy price increases worsened by Russia’s war in Ukraine, and climate change.
“In the face of such shocks, many countries have been compelled to turn to short-term support measures, such as tax cuts, untargeted food or fuel subsidies, and price controls on specific goods. These measures, while necessary, have added to fiscal pressures amid growing debt vulnerabilities, forcing governments into difficult tradeoffs.
“While such shocks do require governments to step in and protect the most vulnerable, actions to gradually reduce fiscal deficits will be crucial in most countries to rebuild buffers, protect debt sustainability, and ensure macroeconomic stability.”
Building a more resilient Africa
The Forum focuses on three ways to reconcile the need to effectively respond to shocks with the goal to rebuild fiscal space, thereby contributing to building a more resilient Africa:
First is to shift from broad-based subsidies when conditions permit to more targeted support to save valuable resources for financing development plans and investment.
In their opinion, “Social spending provides a solid foundation for inclusive growth. It has a significant impact on human capital development by boosting school enrolment, attendance, and learning, improving health care and outcomes, and laying the foundation for increased economic productivity.
“Well-designed and targeted social safety nets will ensure that countries’ scarce resources get to the most vulnerable, where they can do the most good.”
While such shocks do require governments to step in and protect the most vulnerable, actions to gradually reduce fiscal deficits will be crucial in most countries to rebuild buffers, protect debt sustainability, and ensure macroeconomic stability.
Secondly, they urged efficient use of public money to maximize its impact and build more resilience for the benefit of the whole economy.
“Transparent and reliable public financial management (PFM) systems are key, and robust medium-term budgeting frameworks will help policymakers manage competing spending priorities to best achieve their development goals.
“In addition, digitalization, including in the delivery of social assistance, can play a critical role in improving the efficiency and robustness of the management of public money.
“And climate-focused PFM and public investment management practices can ensure that countries manage the climate adaptation and transition challenges most effectively within their available resource envelope,” they said.
Finally, governments of sub-Saharan Africa are advised to secure more stable financial resources and preserve debt sustainability.
“More concessional financing is needed to relax financing constraints given countries’ high levels of debt and rising borrowing costs. Stronger multilateral cooperation is required to address unsustainable debt situations and provide space to support the most vulnerable.
“To help unlock financing for climate resilience, sub-Saharan African countries can develop well defined climate strategies that quantify financing needs, promote a good business environment, and develop a pipeline of credible projects.
“Good governance and fiscal transparency reforms can also foster trust in public institutions, improve tax compliance to support more revenue mobilization, and provide an attractive environment for much needed private financing,” they advised.
Both Ms Georgieva, and Ms. Urpilainen expressed their commitment “to working with sub-Saharan African countries to create an attractive policy environment and provide financing to boost investment for sustainable development.”
