IMF and EU call for stable financing and debt sustainability for African economies

Key highlights

• The IMF and EU have called for stable financial resources, debt sustainability, and concessional financing for African countries.
• Sub-Saharan African countries have faced adverse shocks, requiring short-term support measures and fiscal deficit reduction.
• To build resilience, IMF and EU recommend targeted support, efficient use of public money, and reforms for sound governance and fiscal transparency.

The International Monetary Fund (IMF) has urged African countries should secure more stable financial resources, preserve debt sustainability, and provide more concessional financing to relax financing constraints, given their high levels of debt and rising borrowing costs.

This was disclosed in a joint statement by the Managing Director of the International Monetary Fund Ms. Kristalina Georgieva, and the European Commissioner for International Partnerships Ms. Jutta Urpilainen, at the end of the Eleventh African Fiscal Forum titled ‘Building a Resilient Africa’.

They also urged that public money must be used efficiently to maximize its impact and build more resilience for African economies.

Addressing the shocks

IMF noted that 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. Part of the statement said:

• “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.”

Effective response

They urged on 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, through the following measures:

A shift from broad-based subsidies to more targeted support to save valuable resources for financing development plans and investment.

Use public money efficiently to maximize its impact and build more resilience for the benefit of the whole economy, adding:

• “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.
• “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.”

The statement added that more effective collaboration among multiple nations is necessary to tackle the problem of unsustainable debt and create room for assisting those who are most at risk.

In order to facilitate the funding of measures to enhance climate resilience, nations in sub-Saharan Africa may establish clear-cut climate strategies that calculate the requisite financing, stimulate a favorable commercial climate, and cultivate a catalogue of reliable initiatives.

By undertaking reforms that promote sound governance and fiscal transparency, governments can inspire public trust, increase adherence to tax laws to generate additional revenue, and establish a more enticing milieu for urgently needed private funding.

IMF and EU said they committed to working with sub-Saharan African countries to create an attractive policy environment and provide financing to boost investment for sustainable development.”

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