Nigeria’s public debt is set to reach 40% of Gross Domestic Product (GDP) by 2024 on fresh borrowing, the African Development Bank (AfDB) stated in its latest report.
This was revealed in the bank’s African Economic Outlook 2022, which was released at the Bank’s Annual General Meeting (AGM) held in Accra, Ghana.
In the report obtained by Investors King, the multilateral financial institution projected that Nigeria’s economy would grow by 3.4% in 2022 and 3% in 2023. This, the financial institution attributed to high oil prices, a recovery in the service and manufacturing sectors, and government policy to drive growth in the agricultural sector.
However, it cautions that higher oil prices may be offset by production limits caused by technological problems and insecurity in oil-producing countries.
In part, the report reads, “Nigeria’s growth was led largely by services, partly offsetting the contraction in oil output.
“Growth will decelerate, averaging 3.2% during 2022–23, due to persistently low oil production and rising insecurity. Inflation is projected to remain elevated at 16.9% in 2022 and stay above pre-pandemic levels in 2023, fueled mainly by rising food, diesel, and gas prices and persistent supply disruptions amplified by the Russia–Ukraine conflict.
“Capital inflows are projected to recover, while oil exports are projected to increase slightly. The benefit of a forecast positive oil price shock on exports may, however, be partly offset by a weak output effect due to lower oil production, stoked by infrastructure deficiencies and rising insecurity.
“The projected marginal current account surplus of 0.1% of GDP in 2022 could turn into a deficit of 0.2% in 2023. Improved revenue collection will help narrow the fiscal deficit to an average of 4.5% of GDP. Public debt is targeted to reach 40% of GDP by 2024 on fresh borrowing.
“The headwinds to the outlook may be exacerbated by rising insecurity and policy uncertainty underpinned by reversal of initially planned removal of subsidies on premium motor spirit a year before the 2023 elections.”
Zambia’s Finance Minister Faces Dual Challenge in Upcoming Budget Address
As Zambia’s Finance Minister, Situmbeko Musokotwane, prepares to present the nation’s budget, he finds himself at a pivotal crossroads.
The second-largest copper producer in Africa is grappling with two pressing concerns: debt sustainability and soaring living costs.
Debt Restructuring Dilemma: Musokotwane’s foremost challenge is finalizing the $6.3 billion debt-restructuring deal with official creditors, led by China and France.
Delays have hindered disbursements from the International Monetary Fund (IMF) and left private creditors in limbo.
To reassure investors, a memorandum of understanding with the official creditor committee is urgently needed.
President Hakainde Hichilema emphasizes the importance of sealing these transactions to signal closure on this tumultuous chapter.
Plummeting Tax Revenue: The key copper-mining industry, which accounts for 70% of Zambia’s export earnings, is in turmoil.
First-half mining company taxes and mineral royalty collections have nosedived, adding to economic woes.
This, in turn, has depreciated the local currency, exacerbating imported inflation, particularly in fuel prices.
Rising Food Inflation: Musokotwane faces mounting political pressure to combat soaring living costs, with annual inflation reaching an 18-month high of 12%. Corn meal prices, a staple in Zambia, have surged by a staggering 67% in the past year.
Neighboring countries’ demand for corn has led to smuggling and further price spikes, raising concerns about food security.
Currency Woes: The kwacha’s value has been a barometer for the nation’s economic health. It depreciated by 16% since June 22, the worst performance among African currencies, reflecting the ongoing debt-restructuring uncertainty.
In his budget address, Musokotwane faces the daunting task of striking a balance between debt management, economic stability, and alleviating the burden on Zambia’s citizens.
The international community will keenly watch to see if his fiscal measures can steer the nation toward a path of recovery and prosperity.
IMF Urges Sub-Saharan African Nations to Eliminate Tax Exemptions for Fiscal Health
Sub-Saharan African countries have been advised by the International Monetary Fund (IMF) to tackle their fiscal deficits by focusing on eliminating tax exemptions and bolstering domestic revenue rather than resorting to fiscal expenditure cuts, which could hamper economic growth.
The IMF conveyed this recommendation in a paper titled ‘How to avoid a debt crisis in Sub-Saharan Africa.’
The IMF’s paper emphasizes that Sub-Saharan African nations should reconsider their overreliance on expenditure cuts as a primary means of reducing fiscal deficits. Instead, they should place greater emphasis on revenue-generating measures such as eliminating tax exemptions and modernizing tax filing and payment systems.
According to the IMF, mobilizing domestic revenue is a more growth-friendly approach, particularly in countries with low initial tax levels.
The paper highlights success stories in The Gambia, Rwanda, Senegal, and Uganda, where substantial revenue increases were achieved through a combination of revenue administration and tax policy reforms.
The IMF also pointed out that enhancing the participation of women in the labor force could significantly boost Gross Domestic Product (GDP) in developing countries.
The IMF estimates that raising the rate of female labor force participation by 5.9 percentage points, which aligns with the average reduction in the participation gap observed in the top 5% of countries during 2014-19, could potentially increase GDP by approximately 8% in emerging and developing economies.
In a world grappling with the weakest medium-term growth outlook in over three decades, bridging the gender gap in labor force participation emerges as a vital reform that policymakers can implement to stimulate economic revival.
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