(NIGERIA) – The International Monetary Fund (IMF) has called upon countries in the Sub-Saharan Africa region, including Nigeria, to reduce their fiscal deficits by three percent to prevent potential debt crises.
This appeal was made in a report titled “How to Avoid a Debt Crisis in Sub-Saharan Africa.”
The report, authored by a team of IMF staff led by Fabio Comelli, a senior economist in the IMF’s African Department, outlines five policy actions that African governments, including Nigeria, can take to maintain the sustainability of public finances while pursuing their development objectives.
Nigeria’s fiscal deficit to Gross Domestic Product (GDP) ratio decreased from 6.3 percent in 2021 to 5 percent in 2022.
However, the World Bank projects that this ratio will rise to 5.4 percent this year and further to 5.8 percent by 2025.
To address this trend, the IMF recommends that Nigeria and other Sub-Saharan African countries facing similar challenges should:
- Establish a clear fiscal policy through a credible medium-term strategy.
- Prepare for fiscal adjustments to bring debt levels to a safer range.
- Increase domestic revenue mobilization efforts.
- Strengthen budget institutions to enhance fiscal plan implementation.
- Anticipate public resistance to reforms to garner support for necessary changes.
Regarding the need to reduce the fiscal deficit, the IMF report states, “IMF staff analysis shows that most countries in the region will need to reduce their fiscal deficits in the coming years. For the average country, the amount of adjustment is about 2 to 3 percent of GDP.
This adjustment appears feasible based on historical experience, as sub-Saharan African countries have previously improved their primary balance by 1 percent of GDP per year over two to three years. However, not all countries face the same challenge.
About a quarter of the region’s economies still have fiscal space and can use it to maintain or increase essential investments in human and physical capital. On the other hand, a few countries have significant adjustment needs, which may require additional measures such as debt reprofiling or restructuring.”