Ms. Kristalina Georgieva, Managing Director of the International Monetary Fund, and Ms. Jutta Urpilainen, European Commissioner for International Partnerships (ECIP), in a joint statement have stressed on the importance of reducing fiscal deficits, stating that it is “crucial to debt sustainability and macroeconomic stability“.
This joint statement was issued today, Tuesday, March 21, 2023, on the occasion of the Eleventh African Fiscal Forum dubbed: ‘Building a Resilient Africa’, which is taking place virtually from March 21 to March 22, 2023. In the statement, Georgieva and Urpilainen noted that:
“Over the past three years, Sub-Saharan African countries have been confronted with large adverse shocks that have led to a sharp deterioration in living conditions, including the COVID-19 pandemic, food and energy price increases worsened by Russia’s war in Ukraine, and climate change.
“In the face of such shocks, many countries have been compelled to turn to short-term support measures, such as: tax cuts, untargeted food or fuel subsidies, and price controls on specific goods. These measures, while necessary, have added to fiscal pressures amid growing debt vulnerabilities, forcing governments into difficult tradeoffs. While such shocks do require governments to step in and protect the most vulnerable, actions to gradually reduce fiscal deficits will be crucial in most countries to rebuild buffers, protect debt sustainability, and ensure macroeconomic stability.”
Georgieva & Urpilainen
According to Georgieva and Urpilainen, it is on this backdrop that the 11th African Fiscal Forum is held and it focuses on three ways to reconcile the need to effectively respond to shocks with the goal to rebuild fiscal space, thereby contributing to building a more resilient Africa:
The first way to respond to shocks as per the statement issued is to shift from broad-based subsidies to more targeted support to save valuable resources for financing development plans and investment, when conditions persist.
Georgieva and Urpilainen believe that social spending provides a solid foundation for inclusive growth and also has a significant impact on human capital development by boosting school enrollment, attendance, and learning, improving health care and outcomes, as well as laying the foundation for increased economic productivity.
Well-designed and targeted social safety nets, they noted, will ensure that countries’ scarce resources get to the most vulnerable, where they can do the most good.
Secondly, African countries are advised to use public money efficiently to maximize its impact and build more resilience for the benefit of their economies. Transparent and reliable public financial management (PFM) systems, Georgieva and Urpilainen stated, are key, and robust medium-term budgeting frameworks will help policymakers manage competing spending priorities to best achieve their development goals.
In addition, digitalization, including in the delivery of social assistance, they noted can play a critical role in improving the efficiency and robustness of the management of public money. Again, climate-focused PFM and public investment management practices can ensure that countries manage the climate adaptation and transition challenges most effectively within their available resource envelope, the two partners added.
Third shock response technique provided is for African countries to secure more stable financial resources and preserve debt sustainability. In their statement, Georgieva and Urpilainen advised that more concessional financing is needed to relax financing constraints given countries’ high levels of debt and rising borrowing costs. They added that stronger multilateral cooperation is also a necessary requirement to address unsustainable debt situations and provide space to support the most vulnerable.
African countries urged to develop well defined climate strategies to unlock financing for climate resilience
To help unlock financing for climate resilience, the two partners suggested that Sub-Saharan African countries develop well defined climate strategies that quantify financing needs, promote a good business environment, and develop a pipeline of credible projects. Moreover, they suggested good governance and fiscal transparency reforms as a way to foster trust in public institutions, improve tax compliance to support more revenue mobilization, and provide an attractive environment for much needed private financing.
“We are committed to working with sub-Saharan African countries to create an attractive policy environment and provide financing to boost investment for sustainable development.”
Georgieva & Urpilainen
Delegates at the Forum include Ministers of Finance and Social Affairs, other government officials, and representatives from civil society.
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