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IOL News
5 days ago
- Business
- IOL News
How to stabilize Africa's debt: Strengthen public finances, pro-growth reforms, sound environment
Successful debt stabilization requires measures to strengthen public finances and institutions, alongside pro-growth structural reforms and a sound macroeconomic environment. Image: Supplied By Athene Laws, Thibault Lemaire, and Nikola Spatafora In the context of high global uncertainty, tighter global financial conditions, and rising borrowing costs, concerns about sub-Saharan Africa's debt vulnerabilities are mounting. But the region is tackling this issue head-on and public debt ratios have stabilized on average. Our analytical note in the IMF's latest Regional Economic Outlook for sub-Saharan Africa uses a new data set to highlight when, how often, to what extent, and how debt stabilization was achieved. Surprising frequency Contrary to perception, countries in the region have often been able to stabilize or reduce their debt ratios without debt restructuring. With more than 60 debt reduction episodes (defined as periods of two or more years during which the public debt-to-GDP ratio fell), the probability that a country will experience such an episode in any given year is one in four. And these episodes have occurred even amid an unfavorable external environment, including in the aftermath of the commodity super cycle and in the wake of the COVID-19 pandemic. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. 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Next Stay Close ✕ Successful debt stabilization requires measures to strengthen public finances and institutions, alongside pro-growth structural reforms and a sound macroeconomic environment Image: Supplied The debt decline in many cases was economically significant and persistent: most episodes involved a decrease of more than 10 percentage points of GDP, and almost half of those episodes lasted four or more years. For example, the Democratic Republic of Congo's debt ratio fell by 15 percentage points of GDP during 2010–23, and Cabo Verde's debt ratio decreased by more than 30 percentage points over 2021–23. Sustained debt reduction typically reflects both budgetary consolidation and real economic growth. Often these two drivers go together—budgetary consolidation (that is, an increase in primary balances) is itself more likely when growth is rapid. In fragile and conflict-affected states, however, as well as low-income countries, growth is the predominant driver of many successful reductions in debt. Securing success Debt reduction is more likely, more significant, and more persistent if three conditions hold: the country has a solid domestic institutional framework and enjoys a supportive domestic business environment; global growth is buoyant; and global borrowing costs are low. A debt decline is also more likely when an IMF-supported arrangement is present, pointing to the importance of international financial and policy support. Relatedly, budget consolidation must be sustained over time to translate into debt consolidation. While exchange rate stability can support successful debt stabilization, maintaining an overvalued exchange rate can prove counterproductive since it is likely to lower growth and hamper overall macroeconomic stability. By way of example, in Mauritius, a favorable domestic and external environment, solid growth, and a stable currency saw a reduction in the debt ratio of almost 20 percentage points during 2003–08. The road ahead The key message for policymakers is that fiscal adjustment is likely to result in stronger, more durable reductions in debt when complemented by pro-growth structural reforms and by measures to strengthen institutional frameworks. Such measures should include well-designed fiscal rules to ensure that off-budget fiscal operations do not undermine debt reduction. Efforts to cut debt are also more likely to prove successful in a context of macroeconomic stability, including low and stable inflation. Countries aiming to sustainably reduce debt should seize the opportunity to tax and spend more efficiently. The focus should be on strengthening fiscal balances in a growth-friendly manner by broadening the tax base, removing inefficient tax exemptions, and ensuring that money is well spent. Support from the international community, including through technical support but also through concessional financing, is critical to helping the region succeed. Most countries—especially fragile states and low-income countries—face difficult trade-offs between short-term macroeconomic stabilization, longer-term development needs, and making reforms socially acceptable. External support can make these difficult trade-offs less daunting. * Athene Laws and Thibault Lemaire are economists, and Nikola Spatafora is a senior economist, in the IMF's African Department. ** The views expressed do not necessarily reflect the views of IOL or Independent Media. BUSINESS REPORT
Zawya
08-07-2025
- Business
- Zawya
How to Stabilize Africa's Debt
In the context of high global uncertainty, tighter global financial conditions, and rising borrowing costs, concerns about sub-Saharan Africa's debt vulnerabilities are mounting. But the region is tackling this issue head-on and public debt ratios have stabilized on average. Our analytical note in the IMF's latest Regional Economic Outlook for sub-Saharan Africa uses a new data set to highlight when, how often, to what extent, and how debt stabilization was achieved. Surprising frequency Contrary to perception, countries in the region have often been able to stabilize or reduce their debt ratios without debt restructuring. With more than 60 debt reduction episodes (defined as periods of two or more years during which the public debt-to-GDP ratio fell), the probability that a country will experience such an episode in any given year is one in four. And these episodes have occurred even amid an unfavorable external environment, including in the aftermath of the commodity super cycle and in the wake of the COVID-19 pandemic. The debt decline in many cases was economically significant and persistent: most episodes involved a decrease of more than 10 percentage points of GDP, and almost half of those episodes lasted four or more years. For example, the Democratic Republic of Congo's debt ratio fell by 15 percentage points of GDP during 2010–23, and Cabo Verde's debt ratio decreased by more than 30 percentage points over 2021–23. Sustained debt reduction typically reflects both budgetary consolidation and real economic growth. Often these two drivers go together—budgetary consolidation (that is, an increase in primary balances) is itself more likely when growth is rapid. In fragile and conflict-affected states, however, as well as low-income countries, growth is the predominant driver of many successful reductions in debt. Securing success Debt reduction is more likely, more significant, and more persistent if three conditions hold: the country has a solid domestic institutional framework and enjoys a supportive domestic business environment; global growth is buoyant; and global borrowing costs are low. A debt decline is also more likely when an IMF-supported arrangement is present, pointing to the importance of international financial and policy support. Relatedly, budget consolidation must be sustained over time to translate into debt consolidation. While exchange rate stability can support successful debt stabilization, maintaining an overvalued exchange rate can prove counterproductive since it is likely to lower growth and hamper overall macroeconomic stability. By way of example, in Mauritius, a favorable domestic and external environment, solid growth, and a stable currency saw a reduction in the debt ratio of almost 20 percentage points during 2003–08. The road ahead The key message for policymakers is that fiscal adjustment is likely to result in stronger, more durable reductions in debt when complemented by pro-growth structural reforms and by measures to strengthen institutional frameworks. Such measures should include well-designed fiscal rules to ensure that off-budget fiscal operations do not undermine debt reduction. Efforts to cut debt are also more likely to prove successful in a context of macroeconomic stability, including low and stable inflation. Countries aiming to sustainably reduce debt should seize the opportunity to tax and spend more efficiently. The focus should be on strengthening fiscal balances in a growth-friendly manner by broadening the tax base, removing inefficient tax exemptions, and ensuring that money is well spent. Support from the international community, including through technical support but also through concessional financing, is critical to helping the region succeed. Most countries—especially fragile states and low-income countries—face difficult trade-offs between short-term macroeconomic stabilization, longer-term development needs, and making reforms socially acceptable. External support can make these difficult trade-offs less daunting. Distributed by APO Group on behalf of International Monetary Fund (IMF).
Khaleej Times
20-05-2025
- Business
- Khaleej Times
GCC states to lead growth in Mena region, says IMF
The Gulf Cooperation Council (GCC) countries will outpace the wider Middle East and North Africa (Mena) regional growth this year and next, the International Monetary Fund (IMF) said on Thursday. It said the direct impact of the global tariff war will be 'generally limited' due to tariff exemption on energy exports. The IMF said in its latest report that the oil-exporting Gulf economies will expand 3.0 per cent and 4.1 per cent in 2025 and 2026, respectively, while the Mena region will grow by 2.6 per cent in 2025 and 3.4 per cent in 2026. Non-oil exporters' economies are likely to expand by 1.4 per cent and 1.8 per cent, respectively. 'In most GCC countries, favourable oil prices, domestic investment by the sovereign wealth fund (Saudi Arabia), and the implementation of ambitious diversification reforms contributed to increased private consumption and investment. Business environment reforms started to yield positive results, with inward foreign direct investment (FDI) increasing by nearly 2 percentage points of GDP during 2023–24 compared with pre-pandemic levels,' the Fund said in its Regional Economic Outlook on Thursday. It said GCC growth is projected to strengthen in 2025 and 2026 because of the extension of Opec+ voluntary oil production cuts through April 2025, their more gradual phase-out through end-2026, and lower non-oil growth. Non-oil growth is expected to be supported by ongoing infrastructure projects and diversification efforts, although it has been revised down compared to expectations in October, because of a recalibration of investment spending plans resulting from softer oil prices — further amplified by the decline in oil prices from the recent escalation of trade tensions — as well as the overall expected impact of heightened global uncertainty on consumer and business sentiment. Tariff impact 'The direct impact of changes in tariffs is generally limited because of the tariff exemption on energy exports and the limited non-oil exports to the US. Over the medium term, growth is set to be supported by natural gas expansion in Oman, Qatar, Saudi Arabia, and the UAE,' it said in its outlook. 'We continue to assess the application of April outlook changes in the US tariff policy. While the direct effects are expected to be modest, giving limited trade exposure to the US and exemptions for energy products, the indirect effects could be more pronounced. Slower global growth could weaken external demand and remittances, and tighter financial conditions may prove challenging for countries with elevated public debt,' said Jihad Azour, director of the Middle East and Central Asia at IMF. 'Lower oil prices would worsen all exporting economies fiscal and external positions, although they would provide some relief for all importers. Some countries may benefit from trade diversion, but such gains are hard to predict and will occur in a broader environment of trade contraction. For Mena economies, these developments are adding to existing regional sources of uncertainty, including ongoing conflicts, pockets of political instability and climate vulnerability,' he said during a media briefing on Thursday. Dubai, Abu Dhabi's growth Azour projected that the Abu Dhabi and Dubai economies will grow 4.2 per cent and 3.3 per cent, respectively, in 2025. Next year will see even better growth for the UAE's two largest emirates Abu Dhabi and Dubai to increase 5.8 per cent and 3.5 per cent, respectively. It earlier forecasted 4 per cent UAE growth for 2025, lowering from its previous forecast. 'Abu Dhabi is enjoying also the recovery in the oil sector, where the increase in oil production and also the massive infrastructure and investments that are currently taking place in Abu Dhabi. The UAE has demonstrated after Covid, especially now in the world of the high level of uncertainty, its capacity to manage successfully the uncertainty and show the strong and reliable capacity to address issues related to protecting lives and livelihoods and keeping the economy functioning,' he added. With regard to Dubai, he said many sectors such as financial services are growing and their share in the economy is increasing.
Egypt Today
04-05-2025
- Business
- Egypt Today
IMF's latest report notes reform progress, debt sustainability as reasoning for recent economic forecast
Cairo – May 4, 2025: The International Monetary Fund (IMF) has outlined the key factors affecting Egypt's economic outlook in its latest Regional Economic Outlook, noting that slower-than-expected progress on structural reforms, compounded by ongoing geopolitical tensions, has dampened growth prospects for 2025. In April, the IMF revised its forecast to 4.3 percent, up by 0.2 percentage points from January, marking Egypt as one of the few countries to see growth in the region. The IMF noted that 'economic activity is expected to pick up but remain modest' in FY2025/2026, reflecting the complex challenges Egypt continues to face. These include the strain of regional instability, particularly the conflict in Gaza, and its cascading effects on neighboring countries like Jordan, which have worsened Egypt's economic conditions. Additionally, a heavy debt service burden is further complicating Egypt's efforts at fiscal consolidation, which were already under pressure due to the lingering effects of the COVID-19 pandemic. The significant drop in Suez Canal revenues, which saw a loss of around $7 billion (approximately LE 350 billion) in 2024, has strained Egypt's fiscal revenues, contributing to a widening of the current account deficit. The IMF notes that these regional spillovers have also suppressed exports, further complicating Egypt's economic recovery. Despite the setbacks, the IMF highlights a projected partial recovery in Suez Canal receipts, with the Egyptian government's draft budget estimating a rise to $6.3 billion for FY2025/2026, up from an estimated $3.7 billion this year. At the same time, rising debt service costs, now expected to exceed 9 percent of GDP in FY2025/2026, continue to widen Egypt's fiscal deficit. Although Egypt has managed to maintain a higher primary surplus through tighter fiscal controls, this surplus still falls short of initial projections, signaling the ongoing strain on the country's finances. The IMF also raised concerns about Egypt's debt sustainability, particularly as the country will likely need to refinance maturing debt at higher yields, alongside other regional economies such as Tunisia, Jordan, and Pakistan. The report notes that gross public financing needs across emerging markets and middle-income countries in the region are projected to rise to $263 billion in 2025, up from $249 billion in 2024, with further increases expected in the years to come. To address these fiscal challenges, the IMF recommends that Egypt accelerate structural reforms, particularly expanding the tax base and reducing risks associated with state-owned enterprises. On the monetary front, the IMF advises maintaining high interest rates until inflation is clearly under control while continuing to work on developing a formal inflation-targeting framework. Despite these challenges, the IMF's report also points to some medium-term optimism for Egypt. The Fund projects that improvements in regional security could lead to a recovery in key economic sectors, such as exports, Suez Canal activity, and tourism inflows. This gradual recovery is expected to help narrow Egypt's current account deficit and support the country's broader economic growth over time. The IMF also notes a broader regional slowdown, with growth in the Middle East and North Africa projected at just 2.6 percent in 2025, down from the 4.0 percent forecast last October. The slowdown is attributed to ongoing global trade tensions, protracted regional conflicts, and a slower-than-expected recovery in oil production. However, the IMF expects regional growth to rebound to 3.4 percent in 2026 as these issues begin to ease.
Gulf Business
02-05-2025
- Business
- Gulf Business
IMF trims 2025 MENA growth forecast to 2.6% as global risks mount
Image: Getty Images The International Monetary Fund said on Thursday it now expects Middle East and North Africa economies to grow by just 2.6 per cent in 2025 as uncertainties stemming from a global trade war and The fresh projection marked a sharp downgrade from its October projection of 4 per cent growth and comes as the region grapples with geopolitical tensions, softer external demand and oil market volatility. Read- 'Uncertainty could impact the real economy, consumption, investment, all these elements led to a softening of our projections,' Jihad Azour, the IMF's director for the Middle East and Central Asia department, told Reuters in an interview. 'The direct impact of the tariff measures is limited because the integration in terms of trade between the region and the US is limited.' The IMF also pointed to a gradual recovery in oil production, protracted regional conflicts, and delayed structural reforms, particularly in Egypt, in its latest Regional Economic Outlook report released in Dubai. 'The ongoing conflicts in the MENA region have inflicted profound humanitarian costs and left deep economic scars,' it said in the report, adding that the impact has been severe for the region's oil importing economies. The MENA non-oil importers are now expected to see real GDP growth of 3.4 per cent in 2025, versus an earlier forecast of 3.6 per cent. Diverging outlooks Growth among non-Gulf Cooperation Council oil exporters is expected to slow by one percentage point in 2025 – a sharp downward revision – before staging a modest recovery in 2026. On the other hand, GCC economies are projected to strengthen, though at a slower pace than anticipated in October, amid extended OPEC voluntary production cuts through April, a gradual phase-out by end-2026, and weaker non-oil activity. 'With all these changes and challenges, it's important also to seek new trade partnerships,' Azour said, referring to the GCC, a bloc comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. GCC countries have stepped up efforts to diversify their economies, with major initiatives like Saudi Arabia's Vision 2030 and the UAE's push into tourism, logistics and manufacturing aimed at reducing reliance on hydrocarbons. 'Trade diversification, acceleration of structural reforms, and improvement of productivity are all elements that will help the non-oil sector to maintain a strong level of growth,' Azour said. Read more:
