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IMF Urges Nigeria And Sub-Saharan Africa To Cut Fiscal Deficit

Nigeria and other Sub-Saharan African nations have been cautioned by the International Monetary Fund (IMF) to cut their fiscal deficits by 3% in order to prevent the escalation of debt crises.

Fabio Cormelli, an economist with the IMF, made this suggestion on Tuesday in response to the finding that Nigeria’s budget deficit to Gross Domestic Product (GDP) ratio decreased from 6.3% in 2021 to 5% in 2022.

The average debt ratio in Sub-Saharan Africa has nearly doubled over the past ten years, rising from 30% of GDP at the end of 2013 to nearly 60% of GDP by the end of 2022, according to an IMF paper titled “Navigating Fiscal Challenges in Sub-Saharan Africa: Resilient Strategies and Credible Anchors in Turbulent Waters”.

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.

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The average country’s adjustment amount is about 2% to 3% of GDP, a target deemed feasible given historical experience.

He remarked 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 that African governments should 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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