Russia-Ukraine war slows economic recovery of Sub-Saharan Africa – IMF
Ari Aisen, IMF resident representative to Nigeria has said that Subsaharan Africa was in the recovery process from the Covid pandemic when they suffered a second shock from the Russian-Ukraine war.
This has reduced the pace of the region’s growth, and elevated debts. Aisen made this known during an interview on Arise TV monitored by business day.
He said that “according to the Economic Outlook by the IMF, growth for the region is expected to be much slower at 3.8 percent compared to an estimated growth of 4.5 percent in 2021. Oil and agricultural commodities importers in this region are suffering the negative effects of the war, coupled with inflationary pressures”.
Speaking further, Aisen said that “countries in this region are having an already exposed and very high debt position because they had used up the limited fiscal space that they could to support their economies during the pandemic and pray there shouldn’t be a third shock which would offset the whole world and individuals.”
Growth in Africa’s largest economy is estimated at 3.4 percent in 2022, and its debt is expected to increase to 100 percent in 2026, also an estimation of N6 trillion to be spent on fuel subsidies.
“Things are complicated in Nigeria regarding debt service to revenues of the federal government and if nothing is done it might reach 100 percent,” Aisen added.
He attributed the high debt service to low revenue intake by the federal government and the fact that some of the expenditures like subsidies that are being deducted from the revenues, could actually be dealt with in a different way which would leave more revenues.
To address the economic turmoil, the IMF resident representative to Nigeria said that the top priority of the government should be to enhance and strengthen existing mechanisms to bring more revenue and reprioritize spending more on social investments, infrastructures, education, nutrition, and health rather than on subsidies.
“Restoring fiscal sustainability and reducing deficits should hinge on efforts to mobilize more revenues not to reduce spending which is already very low,” he said.
Similarly, Aisen advised that everyone should be accountable for the good use of resources being accumulated and there needs to be the support for the program by the ministry of finance of raising the revenue to GDP ratio through better tax administration, more enforcement of digitalization, and a better incentive for people and companies to pay their dues.
Aisen stated that Nigeria is a very strong economy that still will be able to sustain her level of debt. GDP is growing now at a moderate level so Nigeria doesn’t suffer solvency issues. The priority for the new administration come May 2023, would be to restore fiscal sustainability, by mobilizing more revenues, and not relying on debt to finance those critical expenditures.
He added that the fuel subsidies are aggressive and that the rich benefit more from fuel subsidies than the poor.
The first thing to do is to fix this situation by compensating the most vulnerable that would be affected by the elimination of the fuel subsidies.
He further stated that the Ministry of Finance is working along with the IMF in creating a mechanism for recognizing and transferring funds that will compensate for the losses of these most vulnerable and that the removal of subsidies should be done with consensus in order to restore fiscal sustainability.
