Economic outlook for Sub Saharan Africa in 2021 From IMF

The following is the Economic outlook for Sub Saharan Africa in 2021 From IMF recommended by recordtrend.com. And this article belongs to the classification: global economy , research report.

Imagine you’re a policy maker in sub Saharan Africa. You’re responsible for getting the country out of the worst health crisis in history, and no one around you knows when it’s going to end – the second wave of outbreaks that swept the region earlier this year has eased, but as winter approaches, many countries are responding to a new one.

The good news is that the global economy is recovering. Major economies are rebounding sharply, Global trade has improved, commodity prices have risen and investment flows have resumed.

The bad news is that, at least in sub Saharan Africa, the near-term growth outlook is somewhat bleaker. As long as there is still no large-scale vaccination, it will face a difficult task – not only to promote economic growth, but also to respond to COVID-19’s comeback.

Three challenges

That’s what many finance ministers in sub Saharan Africa are facing. They face three urgent challenges: first, to meet the growing demand for expenditure; Second, control the substantial growth of public debt; Third, mobilize more tax revenue.

How policy makers deal with this dilemma will have a significant impact on the economic and social development in the next few years.

This requires a very difficult trade-off, because measures to deal with one of the problems are bound to come at the expense of the other two factors. For example, expanding spending will require further borrowing or tax increases, or both. On the other hand, measures to increase tax revenue, although challenging at the political and social levels, will provide much-needed resources to expand spending or control debt, or both.

Demand for government spending

Even before the outbreak of COVID-19, the development needs of sub Saharan Africa have been very arduous under the background of rapid population growth.

After the outbreak of the epidemic, the development process of the region has almost retrogressed for ten years, which makes the above expenditure demand more urgent. For example, in 2020, the employment in the whole region was reduced by about 8.5%, influenced by COVID-19. More than 32 million people have fallen into poverty, and the interruption of education has affected the future of a whole generation of school-age children.

Moreover, a large proportion of the most marginalized workers in the region are concentrated in some of the most affected sectors, exacerbating inequality.

In this context, it is understandable that the demand for expanding social expenditure and increasing investment in health, education and infrastructure has further increased. This pressure will only intensify. By 2030, sub Saharan Africa’s new labor force will account for nearly half of the global new labor force.

Growing concerns about debt

Despite the differences among countries, public debt in sub Saharan Africa will increase to nearly 58% of GDP in 2020, the highest level in nearly 20 years, with a sharp increase of more than 6 percentage points in just one year.

Although this is lower than the peak at the beginning of the 21st century, the public debt problem of many countries is worrying because their interest burden is gradually increasing.

For example, in 2020, the region’s total interest expenditure accounts for a worrying 20% of the tax revenue, and many countries account for more than one third of the tax revenue, squeezing out scarce resources that should be applied to key social and development needs.

Limited progress has been made in increasing tax revenue

Strengthening tax revenue mobilization is usually the main policy tool to bridge the gap between expenditure pressure and public debt sustainability. However, progress in this area is usually slow. There are differences in the specific requirements of income mobilization in different countries: some countries need to focus on simplifying tax exemption, while others may need to improve the efficiency of the current tax system.

But tax increases are politically difficult in almost all countries, especially at this juncture, as the crisis has further reduced the resources available to many businesses and families. In fact, in some countries, many people rely on tax breaks or tax delays to survive.

Achieving the right balance

Weighing these conflicting requirements has never been easy. The epidemic makes it more difficult to find the right policy mix. However, national authorities cannot do nothing. Each country is faced with unique national conditions and difficult trade-offs, but it must move forward as far as possible.

The international community can provide valuable breathing space. Of course, it is imperative to provide policy support to ensure that every country has access to vaccines quickly and at an affordable cost. However, more broadly speaking, the international community can help alleviate the three difficulties by providing resources, so as to promote regional recovery. The measures include providing grants, preferential financing, extending the G20 debt relief initiative, or disposing the debts of some countries under the common framework for debt disposal.

But the main effort must come from countries in sub Saharan Africa. Today, it is more urgent than ever to carry out drastic and important reforms.

In order to achieve a robust recovery after COVID-19’s retreat, policymakers need to look for opportunities to expand possible measures in a difficult situation. On the spending side, for example, greater transparency and governance reform can improve the efficiency of public spending and ensure that the authorities can help the most needy groups with scarce resources.

On the income side, such transparency and targeted measures are also more likely to improve tax compliance. Measures to improve tax collection and management, including the use of new digital technologies, can expand the tax base. More generally, national authorities should seek to protect vulnerable groups and ensure economic growth while increasing tax revenues.

With regard to debt sustainability, a medium-term fiscal framework is needed to strike a balance between the required short-term supportive fiscal policy stance and the medium-term consolidation, which is crucial for controlling borrowing costs and maintaining confidence, especially in countries with high debt and tight financing.

As a complement to the above measures, national authorities should accelerate reforms to promote private sector economic activity and increase economic diversification, which will help boost potential growth, enhance resilience and create jobs. We will publish some analyses in the near future to explore the long-term benefits of measures to promote private investment.

In all these areas, the IMF stands ready to help its members through emergency financing, technical assistance, or just policy advice.

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