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The International Monetary Fund (IMF) has recommended fiscal tightening for countries in Sub-Saharan Africa, such as Zambia, in a way that meets the country-specific needs while minimising harm to its economy and people.
The recommendation followed the rising needs, limited financing options, and borrowing costs remaining high in the region.
The Fund in its April Sub-Saharan Regional Economic Outlook proposed specific requirement for the recommended fiscal tightening.
According to the Fund, taking immediate steps towards fiscal consolidation may not only be unavoidable but could also strengthen confidence in the region’s adjustment efforts.
“The specific approach to reducing deficits will vary by country. For instance, for countries rich in natural resources, a more gradual approach to fiscal tightening may be warranted given that fuel commodity prices are projected to remain relatively low in the medium term,” it stated.
Ideally, the IMF stated, spreading out fiscal tightening over time would prevent sudden and disruptive changes.
It suggested that a more backloaded adjustment path would also allow for more time to implement important reforms and establish measures to ease the impact.
However, the IMF admitted, many countries faced urgent fiscal pressures due to the ongoing funding squeeze.
To implement the necessary adjustment, while protecting economic growth and social welfare, the IMF underscored the need to focus on boosting revenues rather than cutting essential spending.
It pointed out that simplifying the tax system, widening the tax base, improving tax compliance, and using technology could make tax collection more effective.
The Fund cited the success of electronic sales registers in Ethiopia as a good example of how technology could help.
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