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The International Monetary Fund (IMF) has advised Nigeria and other Sub-Saharan African nations to shift their focus towards eliminating tax exemptions and increasing domestic revenue as a means to reduce fiscal deficits. This approach, according to the IMF, is preferable to reducing fiscal expenditure, which could have detrimental effects on economic development. These recommendations were outlined in a paper titled “How to avoid a debt crisis in Sub-Saharan Africa.”
The IMF emphasized that many Sub-Saharan African countries overly rely on expenditure cuts to manage their fiscal deficits. While such cuts may be necessary in some cases, the IMF suggests that revenue measures, such as the elimination of tax exemptions and the digitalization of filing and payment systems, should play a more prominent role in fiscal management.
The paper highlights that mobilizing domestic revenue is less detrimental to growth, especially in countries with low initial tax levels. In contrast, reducing expenditures can be particularly costly, given the significant development needs in Africa. The IMF cited examples of countries like The Gambia, Rwanda, Senegal, and Uganda, where significant and rapid increases in revenue were achieved through a combination of revenue administration and tax policy measures, albeit being challenging to implement.
Furthermore, the IMF underscored the potential economic benefits of increasing women’s participation in the labor force in developing countries. It estimated that emerging and developing economies could potentially boost their Gross Domestic Product (GDP) by approximately eight percent in the coming years by closing the gender labor force participation gap. This gap could be narrowed by an average of 5.9 percentage points, aligning with the achievements of the top five percent of countries that reduced the participation gap during the period from 2014 to 2019.
The IMF’s analysis suggests that promoting gender equality in labor force participation is one of the critical reforms policymakers can implement to revitalize economies, particularly in light of the weakest medium-term growth outlook in over three decades.
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