IMF urges Ghana, other African nations to reassess fiscal policies amid rising debt vulnerabilities
The International Monetary Fund has issued a stark warning to Ghana and other African nations urging a fundamental rethink of fiscal policies in light of mounting debt vulnerabilities.
According to the IMF, if current policies remain unchanged, the Africa’s public debt-to-Gross Domestic Product (GDP) ratio is set to climb by more than 10 percentage points over the next five years.
This trajectory, the Fund cautions, threatens to stifle private investment, heighten sovereign risk, and curtail the ability of African countries to invest in crucial human and physical capital.
Speaking at the 12th African Fiscal Forum, Vítor Gaspar, Director of the IMF’s Fiscal Affairs Department, stressed the imperative for credible medium-term fiscal strategies to safeguard fiscal sustainability and rebuild buffers while advancing the region’s development objectives.
He highlighted the pressing financial conundrum facing Sub-Saharan African nations, particularly in the wake of limited access to international bond markets. Despite a resurgence in bond issuances in January and February 2024, Mr Gaspar noted persistent challenges, with coupon rates and yields in secondary markets remaining stubbornly high.
Furthermore, he underscored the heightened risks associated with escalating debt levels, emphasizing the strain on bond markets and the growing burden of servicing dollar-denominated debt amid elevated forex trade and a robust dollar.
This year’s Forum focused on how to set fiscal targets and determine the pace and composition of the potential adjustment depending on countries’ specific circumstances. The discussion also explored the role of institutions in addressing implementation challenges and how those institutions can be strengthened.
