September 27, 2023

How to Avoid a Debt Crisis in Sub-Saharan Africa

The Chronicles Editorial September 27, 2023

Trustworthy and indepth news stories are more important now than ever.
Support our newsroom by MAKING A CONTRIBUTION HERE

Public debt in the region has risen to levels not seen in decades

A water treatment plant in Rwanda. Many countries go into debt for infrastructure projects

The average debt ratio in sub-Saharan Africa has almost doubled in just a decade—from 30 percent of GDP at the end of 2013 to almost 60 percent of GDP by end-2022. Repaying this debt has also become much costlier.

The region’s ratio of interest payments to revenue, a key metric to assess debt servicing capacity and predict 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. As of 2022, more than half of the low-income countries in sub-Saharan Africa were assessed by the IMF to be at high risk or already in debt distress.

These trends have sparked concerns of a looming debt crisis in the region. A recent IMF paper offers possible solutions to prevent this from happening. It identifies five policy actions African governments can take to preserve the sustainability of public finances, while also achieving the region’s development goals.

1. Set a course: re-anchor fiscal policy through a credible medium-term strategy

In most sub-Saharan African countries, fiscal policy focuses excessively on short-term goals and is not guided by a clear medium-term strategy. This lack of anchoring has resulted in frequent breaches of fiscal rules and ever-increasing public debt levels.

A more strategic approach to fiscal policy would be preferable by setting explicit debt targets that integrate key policy trade-offs between debt sustainability and development objectives, rather than focusing narrowly on short-term fiscal deficits. The paper suggests a novel approach to estimating country-specific medium-term debt anchors, which ensures that debt service costs remain manageable. According to this methodology, the median debt anchor for the region is about 55 percent of GDP; slightly more than half of the countries were above their anchor at end-2022.

2. Get ready: undertake fiscal adjustment to bring debt back to a safer level

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.

3. Chip in: mobilize more domestic revenue

Sub-Saharan African countries tend to rely excessively on expenditure cuts to reduce their fiscal deficits. Although this may be warranted in some circumstances, revenue measures, like eliminating tax exemptions or digitalizing filing and payment systems, should play a greater role. Mobilizing domestic revenue is less detrimental to growth in countries where initial tax levels are low, whereas the cost associated with reducing expenditures is particularly high given Africa’s large development needs.

While difficult to achieve, large and rapid increases in revenue have been observed in some countries like The Gambia, Rwanda, Senegal, and Uganda, which relied on a mix of revenue administration and tax policy measures.

4. Shore up the house: strengthen budget institutions to improve the implementation of fiscal plans

Policy changes are more likely to yield tangible results if fiscal institutions are strong and efficient. On the expenditure side, well-designed plans too often yield disappointing results due to budgetary slippages or an unforeseen materialization of fiscal risks. Adopting a medium-term fiscal framework, putting in place tools to better assess and manage fiscal risks, and enhancing controls over government expenditure during the budget implementation phase are key to avoiding such pitfalls.

Strong expenditure controls—by strengthening the legal budgeting framework, improving fiscal reporting, and empowering audit and control institutions—are particularly important, as they help countries avoid budgetary slippages, as well as decrease the risk of extra-budgetary commitments, which are widespread in the region.

5. Get people on board: anticipate public resistance to reforms

The sustainability of a new fiscal strategy also depends on the government’s ability to secure public support by linking the policy measures to longer-term benefits. Public acceptance should be a central consideration in policy design—for instance, by sequencing reforms carefully and introducing compensatory measures.

Communication campaigns that transparently and credibly outline the long-term benefits of the reform, its distributional consequences, and the costs of inaction are also critical. Public acceptance of reforms depends more generally on the ability of governments to convince the population that they will use public funds in an efficient, fair, and transparent manner.

Adapted from International Monetary Fund (IMF) website

We can't do quality journalism without your support

Perhaps it goes without saying — but producing quality journalism isn't cheap. At a time when newsroom resources and revenue are declining, The Chronicles remains committed to "Serving Your Right To Know The Truth". Stand with us as we document Rwanda's remarkable journey for you and the future generation. Do you value our journalism? We can't do it without you. Show us with your support by CONTRIBUTING HERE.
Email your news TIPS to info@chronicles.rw or WhatsApp +250788351327.
You can also find us on Signal

Society
November 25, 2023
415 0

Celebrating World Diabetes Day with GT Foundation

Business
November 22, 2023
276 0

Agaciro Development Fund, Hinga Wunguke Partner to Strengthen Food Systems, Promote Agricultural Markets

Featured Stories
November 7, 2023
9 0

While Rwanda Wants Genocide Suspect Kayishema Extradited, Tanzania Isn’t Letting Go

Business
November 2, 2023
1 0

Launch of First Digital Employment Platform in EAC

166 Comments

  41. Thanks for your article. What I want to say is that while looking for a good on-line electronics go shopping, look for a internet site with complete information on important factors such as the privacy statement, safety details, payment methods, and also other terms and also policies. Always take time to see the help as well as FAQ sections to get a far better idea of what sort of shop is effective, what they are capable of doing for you, and just how you can make best use of the features.

    Reply

  42. Thanks for the a new challenge you have unveiled in your short article. One thing I would really like to reply to is that FSBO associations are built with time. By releasing yourself to owners the first weekend break their FSBO is definitely announced, prior to masses start off calling on Monday, you make a good link. By giving them methods, educational resources, free reports, and forms, you become an ally. Through a personal interest in them in addition to their scenario, you generate a solid interconnection that, many times, pays off in the event the owners decide to go with an agent they know in addition to trust – preferably you actually.

    Reply

  43. I’m uncertain about the source of your information, but this is a great topic. I need to invest some time in further research and understanding. Thanks for providing such valuable information; I’ve been searching for this data to aid in my mission. By the way I am a Senior Researcher @ (Clickmen™)

    Reply

  44. I do like the manner in which you have presented this particular problem plus it does give me some fodder for consideration. Nonetheless, coming from what precisely I have witnessed, I simply wish as the reviews pile on that men and women keep on issue and in no way start on a soap box involving the news of the day. Yet, thank you for this superb piece and though I do not necessarily agree with the idea in totality, I value your point of view.

    Reply

  45. I am so happy to read this. This is the type of manual that needs to be given and not the random misinformation that is at the other blogs. Appreciate your sharing this best doc.

    Reply

  46. I’m truly enjoying the design and layout of your site. It’s a very easy on the eyes which makes it much more pleasant for me to come here and visit more often. Did you hire out a designer to create your theme? Outstanding work!

    Reply

  47. Usually I don’t learn article on blogs, but I wish to say that this write-up very forced me to try and do so! Your writing style has been surprised me. Thank you, quite nice article.

    Reply

  48. I am really impressed with your writing skills and also with the layout on your weblog. Is this a paid theme or did you modify it yourself? Anyway keep up the nice quality writing, it is rare to see a nice blog like this one these days..

    Reply

  49. Thanks for revealing your ideas right here. The other element is that whenever a problem develops with a laptop or computer motherboard, people today should not have some risk involving repairing that themselves because if it is not done right it can lead to irreparable damage to the full laptop. It will always be safe to approach the dealer of your laptop for the repair of motherboard. They’ve technicians who’ve an know-how in dealing with laptop computer motherboard problems and can make the right analysis and accomplish repairs.

    Reply

  50. Thanks for sharing your ideas. I’d also like to express that video games have been actually evolving. Technology advances and enhancements have served create reasonable and interactive games. These entertainment games were not actually sensible when the real concept was first of all being tried out. Just like other styles of electronics, video games way too have had to progress through many ages. This itself is testimony to the fast continuing development of video games.

    Reply

  51. The very root of your writing whilst appearing agreeable initially, did not sit very well with me personally after some time. Somewhere throughout the paragraphs you actually were able to make me a believer unfortunately only for a short while. I however have got a problem with your leaps in logic and one would do nicely to fill in all those gaps. In the event you actually can accomplish that, I will certainly be fascinated.

    Reply

  52. Hi just wanted to give you a quick heads up and let you know a few of the images aren’t loading correctly. I’m not sure why but I think its a linking issue. I’ve tried it in two different browsers and both show the same outcome.

    Reply

  53. Greetings from Carolina! I’m bored at work so I decided to browse your website on my iphone during lunch break. I enjoy the information you present here and can’t wait to take a look when I get home. I’m shocked at how quick your blog loaded on my mobile .. I’m not even using WIFI, just 3G .. Anyways, good blog!

    Reply

  54. Hey very nice website!! Man .. Excellent .. Amazing .. I will bookmark your blog and take the feeds also?I am happy to find numerous useful information here in the post, we need develop more techniques in this regard, thanks for sharing. . . . . .

    Reply

  56. Thanks for sharing your ideas with this blog. Likewise, a fantasy regarding the banks intentions when talking about foreclosure is that the financial institution will not getreceive my installments. There is a certain quantity of time which the bank will take payments here and there. If you are very deep in the hole, they are going to commonly require that you pay that payment fully. However, that doesn’t mean that they will have any sort of installments at all. Should you and the lender can find a way to work some thing out, the particular foreclosure process may cease. However, if you ever continue to pass up payments wih the new system, the property foreclosure process can pick up from where it left off.

    Reply

  57. Woah! I’m really enjoying the template/theme of this website. It’s simple, yet effective. A lot of times it’s very difficult to get that “perfect balance” between superb usability and appearance. I must say that you’ve done a amazing job with this. In addition, the blog loads very fast for me on Internet explorer. Superb Blog!

    Reply

  58. One other thing I would like to state is that in lieu of trying to accommodate all your online degree programs on times that you conclude work (since the majority people are exhausted when they return home), try to arrange most of your lessons on the saturdays and sundays and only one or two courses in weekdays, even if it means a little time off your end of the week. This is really good because on the week-ends, you will be extra rested in addition to concentrated upon school work. Many thanks for the different tips I have acquired from your blog.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *