The International Monetary Fund (IMF) has advised Nigeria and other Sub-Saharan African countries to reduce their fiscal deficit by 3% in order to avoid escalating debt crises. This recommendation was made on Tuesday by Fabio Cormelli, an economist with the IMF, following the observation that Nigeria's fiscal deficit to Gross Domestic Product (GDP) ratio fell to 5% in 2022 from 6.3% in 2021.
According to an IMF paper titled “Navigating Fiscal Challenges in Sub-Saharan Africa: Resilient Strategies and Credible Anchors in Turbulent Waters”, the average debt ratio in Sub-Saharan Africa has almost doubled over the past decade, from 30% of GDP at the end of 2013 to nearly 60% of GDP by the end of 2022. The region’s ratio of interest payments to revenue, a key metric for assessing debt servicing capacity and predicting the risk of a fiscal crisis, has more than doubled since the early 2010s and is now close to four times the ratio in advanced economies.
Cormelli stated that most countries in the region will need to reduce their fiscal deficits in the coming years. The average country’s adjustment amount is about 2% to 3% of GDP, a target deemed feasible given historical experience. He noted that countries in sub-Saharan Africa have improved their primary balance by 1% of GDP a year over two to three years in the past.
The IMF highlighted five policy actions African governments can adopt to preserve public finances' sustainability while also achieving development goals. These include re-anchoring fiscal policy through a credible medium-term strategy and undertaking fiscal adjustment to bring debt back to safer levels.
The IMF also pointed out that while expenditure cuts are important, they are insufficient alone. African countries need to mobilize more domestic revenue. Revenue measures, such as eliminating tax exemptions or digitalizing filing and payment systems, should play a greater role.
The Debt Management Office (DMO) of Nigeria reported that the nation’s total public debt soared to N87.38 trillion by the end of the second quarter of 2023, representing a significant increase of 75.29%, or N37.53 trillion, compared with the N49.85 trillion reported at the end of March 2023.
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