With a debt crisis looming in Africa, economists of the International Monetary Fund (IMF) have outlined five key policy points that African governments could take to impede the rising public debt in sub-Saharan Africa. According to an IMF paper, public debt in the region has reached levels not seen in decades, with the average debt ratio almost doubling in just a decade.
"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," the IMF stated.
The region's ratio of interest payments to revenue, which is a key metric to assess debt servicing capacity and predict the risk of a fiscal crisis, has also 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.
One of the key issues highlighted by the IMF economists is that fiscal policies in most sub-Saharan countries are focused on short-term goals rather than long-term goals. This lack of a clear "medium-term strategy" has led to breaches of fiscal rules and worsened the growing public debt crisis.
To address the debt crisis, the IMF economists suggest that countries should move away from relying solely on expenditure cuts to reduce fiscal deficits. Instead, they recommend implementing revenue measure approaches such as eliminating tax exemptions and digitalizing filing and payment systems. While rapid revenue-increasing approaches can be challenging to implement, there have been observed increases in countries like The Gambia, Rwanda, Senegal, and Uganda.
It is crucial for African governments to prioritize long-term fiscal sustainability and adopt measures that promote economic growth and stability. By implementing these policy points, sub-Saharan African countries can work towards mitigating the rising public debt and avoiding a full-blown debt crisis.