Sub-Saharan Africa needs more fiscal actions to raise domestic revenue – IMF
A customer applies for a Tax Identification Number at Uganda Revenue Authority (URA) offices. According to URA, the construction sector is the hardest hit part of the economy, contributing a mere 5.52 percent or Shs7.75 billion to the tax revenues. PHOTO/ FILE
What you need to know:
- The IMF warns that debt levels are high and the funding squeeze is far from over. With rising needs and fewer options, fiscal policy must centre on ways to adapt in the face of a tighter funding envelope to critical sectors of the economy.
The International Monetary Fund has tasked the governments in Sub-Saharan Africa to carry out more fiscal policy actions to raise domestic revenue collection because assistance from the international community is constrained by the global economic slowdown.
The IMF warns that debt levels are high and the funding squeeze is far from over. With rising needs and fewer options, fiscal policy must centre on ways to adapt in the face of a tighter funding envelope to critical sectors of the economy.
The IMF further points out that the region has often relied on value-added taxes (VAT), but as activity shifts to the formal sector, consideration should also be given to more progressive sources, such as income and property taxes in addition to VAT.
It says more broadly, a critical precondition for tax policy reform is an effective tax administration, an area where the increased use of digitalization promises to significantly improve efficiency in collection.
In its new Regional Economic Outlook report of October 2023, IMF notes that amid high external borrowing costs, authorities will ultimately need to rely more on domestic resources, stressing that in this context, sub-Saharan Africa has some of the lowest revenue-to-GDP ratios in the world.
Currently, Africa’s average tax-to-GDP rate is 16.5 per cent, which is lower than other regions in the world. For Uganda’s case, the tax ratio - GDP fluctuates around 12 to 13 per cent, making it the lowest in the continent.
However, the Director of African Department at IMF, Dr Abebe Aemro Selassie said importantly, authorities in many countries are working hard to address macroeconomic imbalances pointing out that fiscal deficits, for example, have been narrowing, helping stabilize public debt in most countries.
“These outcomes are encouraging, given strong external headwinds, such as slower international demand, and expensive and difficult access to finance. Still, it is too early to celebrate as many challenges lie ahead. The funding squeeze is not over, and while debt levels have stabilized, the cost of repayments has increased and high debt service ratios to revenue risk crowding out vital development spending,” he said.
Preliminary estimates by Uganda’s Ministry of Finance, Planning and Economic Development indicate that the nominal stock of Uganda’s public debt increased from Shs78.8 trillion (USD 21 billion) at the end of June 2022 to Shs86.7 trillion ($ 23.6 billion) at the end of June 2023.
The Minister of Finance, Planning and Economic Development, Mr Matia Kasaija said in mid-September this year that the execution of the budget during FY 2022/23 resulted in a fiscal deficit of Shs1.4 trillion which is equivalent to 5.6% of GDP.
“Although this is higher than what was programmed, it is lower than the 7.4% registered for FY2021/22 and thus reflects the fiscal consolidation drive the government is pursuing,” he said.
In the report, the IMF said with limited revenues and large development needs, countries need to make the most from the resources they have.
