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“Reduce Fiscal Deficit by 3% of GDP”, IMF Charges Nigeria, Others

The International Monetary Fund, IMF, yesterday called on Nigeria and other countries in the Sub Saharan Africa   region to reduce the fiscal deficit by three per cent to avoid debt crises.

The IMF made this call 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, listed    five policy actions Nigeria and other   African governments can take to preserve the sustainability of public finances, while also achieving the region’s development goals.

Nigeria’s fiscal deficit to Gross Domestic Product, GDP ratio fell to 5 per cent in 2022 from 6.3 per cent in 2021. However this ratio is projected by the World Bank to hit 5.4 per cent this year and increase further to 5.8 per cent by 2015.  

To address this trend,   the IMF advised Nigeria and other Sub Saharan countries in similar situation to: Set a course by   re-anchoring fiscal policy through a credible medium-term strategy; Get ready by   undertaking   fiscal adjustment to bring debt back to a safer level; Chip in by mobilising more domestic revenue; Shore up the house by strengthening   budget institutions to improve the implementation of fiscal plans; and Getting people on board by   anticipating. public resistance to reforms.

On the need to reduce the fiscal deficit, the IMF report said: “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 seems feasible given historical experience—in the past, countries in sub-Saharan African countries improved their primary balance by 1 percent of GDP a year over two to three years.

“But not all countries face the same challenge. About a quarter of the region’s economies still have some fiscal space and can use it to maintain and even increase vital investments in human and physical capital. On the other hand, a few countries have very large adjustment needs; for them, it is unlikely that fiscal consolidation alone will be enough to ensure fiscal sustainability. It may need to be complemented by debt reprofiling or restructuring.”

Source : Vanguard