• Sunday, July 14, 2024
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IMF drums up international support for Nigeria, Sub-saharan Africa economies

Public debt hurts citizens, says IMF

The International Monetary Fund (IMF) says it is now crucial for the international community to urgently support Sub-saharan economies. Growth in the region is expected to slow down sharply this year, from 4.7 percent in 2021 to 3.6 percent.

As the worst of COVID-19 pandemic eased towards the end of 2021, the region showed some good signs of recovery. But that recovery was stalled as a worldwide slowdown, tighter global financial conditions, and volatile commodity prices spilled into a region already weary from a prolonged pandemic.

Nigeria’s economy, which has not benefitted from recent oil rally while carrying huge budget deficit due to overburdening fuel subsidies, is expected to slow from 3.6 percent in 2021 to 3.2 percent in 2022.

Rising food and energy prices are striking at the region’s most vulnerable, and debt has reached almost 60 percent of GDP, leaving the region with debt levels last seen in the early 2000s. Nineteen of the region’s 35 low-income countries are now in debt distress or at high risk of distress, and inflation rates are in double digits for 40 percent of the region’s economies. All of these have taken a toll on the region’s policy space.

“The near-term outlook is extremely uncertain as the region’s prospects are tied to developments in the global economy and with a number of countries facing difficult sociopolitical and security situations at home,” the IMF explained in its Regional Economic Outlook (REO) for SSA which highlights just how many countries find themselves pushed closer to the edge.

“I would like to stress the critical importance of international assistance,” Abebe Aemro Selassie, director, IMF African Department said while briefing on the new report Friday in Washington at the ongoing annual meetings of the Fund and World Bank Group

“Budget support including official development financing and humanitarian assistance has been declining over the past two decades while the region’s immediate and longer-term development needs have been rising, particularly in areas such as food security and climate change.

“More is needed. And as we look forward to the forthcoming UN Climate Change Conference in Egypt (COP-27), it should be noted that increased support—including more concessional finance—is necessary for sub-Saharan Africa to pursue a low-carbon and climate-resilient growth path,” he stressed.

“With international help, sub-Saharan Africa will be poised to fulfill the promise of the African century, contributing to a more prosperous, greener future for the region and the world.”

The outlook, however, differs significantly across countries, according to the Fund.

Oil exporters in particular stand to gain from higher oil prices and will grow by 3.3 percent this year, up from 3.0 percent last year.

Other-resource intensive economies, on the other hand, will only grow by 3.1 percent in 2022, down from 5.1 percent last year.

Read also: IMF laments Nigeria’s widening fiscal deficit

Non-resource-intensive countries, which enjoy a more diverse economic structure, will continue to be among the region’s most dynamic economies. But in line with a worsening in their terms of trade, they will only grow by 4.6 percent in 2022, down from 6.4 percent last year.

Within this challenging environment and limited options, IMF has not only asked for international assistance, but has advised policymakers in the region to deliberately confront immediate socioeconomic crises as they arise, while also endeavoring to reduce vulnerabilities to future shocks, building resilience.

“Ultimately, the region’s safety and prosperity will require high-quality growth and the implementation of policies that will set the stage for a sustainable recovery, helping countries move away from the edge.”

With these goals in mind, the IMF in the REO, emphasizes four policy priorities, including tackling food insecurity and protecting the most vulnerable with a focus on channeling scarce resources to those who need them most.

It also stressed the need to continue consolidating public finances amid more difficult funding conditions, which will require continued revenue mobilization; a tighter focus on critical spending priorities; increased efficiency; and prudent debt management within credible medium-term fiscal frameworks.

Also, authorities will also need to take steps to contain inflation, by cautiously and gradually increasing interest rates, without jeopardizing the economic recovery or undermining longer-term credibility.

Lastly, policymakers should continue setting the stage for high-quality growth, in a context of accelerating climate change. For the Fund, Investment in resilient and green infrastructure is critical, not least to take advantage of the region’s formidable endowment of renewable energy resources.

Abebe noted, however that most of the issues that they IMF they have been flagging for a long time, which sound theoretical to most African countries, including devastating flood from impact of climate change is now happening.

He confirmed that Nigeria government has not approached it for any of the packages – whether to tackle food or flood – related issues, but that the Fund will be willing to offer any of those assistance, including through its latest food shock window.

He further worried that Nigeria could have benefited even more if it had a more targeted way of supporting poor people, rather than the generalized, fuel subsidies that are being used at the moment.

“Crude oil prices have gone up quite significantly, but the amount of resources that are accruing to the budget, to the external accounts have been very circumscribed as a result of the very generalized subsidy that that the country has.

“I think we’ve been long on record, flagging that fuel and generalized subsidies are extremely costly and extremely regressive. They support families and households, that are richer more than they do for poorer households.”

He said a better policy, as the IMF sees it, would be to find a way to redirect these resources to the most vulnerable households and supplement that with investments in health and education that “Nigeria so desperately needs.”

According to Selasie, “When you have a big surge in prices, it’s understandable that governments would want to do something to smooth the increase in prices, including through subsidies, but those should be temporary and phased out and communicated in a very clear way.

He however, quickly highlighted that it is left for the Nigerian government to decide what works best for the country.

“Fundamentally, ultimately, it’s, of course, a domestic, deeply domestic deeply political decision for Nigeria, and if that’s how the country decides how resources should be used, that’s how it will be used.

“But our role here is really to flag that there are better options that could be done, where economic efficiency could be facilitated in Nigeria.