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Thursday, November 30, 2023

IMF advises, Nigeria Sub-Saharan African nations to prioritize tax reform over fiscal cuts

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The International Monetary Fund (IMF) has recommended that Nigeria and other Sub-Saharan African nations shift their focus towards eliminating tax exemptions and enhancing domestic revenue generation to reduce fiscal deficits. This approach, according to the IMF, is preferable to reducing fiscal expenditure, which could have adverse effects on economic development.

In a paper titled ‘How to Avoid a Debt Crisis in Sub-Saharan Africa,’ the IMF emphasized that Sub-Saharan African countries often resort to expenditure cuts to reduce fiscal deficits. While this may be suitable in specific cases, the IMF suggests that revenue measures, such as eliminating tax exemptions or digitalizing filing and payment systems, should play a more significant role.

The IMF highlighted that mobilizing domestic revenue is less detrimental to growth in countries with low initial tax levels, given Africa’s substantial development needs. The paper also noted that some countries, including The Gambia, Rwanda, Senegal, and Uganda, have successfully achieved substantial and rapid increases in revenue by implementing a combination of revenue administration and tax policy measures.

Additionally, the IMF emphasized the potential for emerging and developing economies to boost their Gross Domestic Product (GDP) by approximately eight percent in the coming years by increasing the participation of women in the labor force. The IMF underscored the importance of reducing the gender gap in the labor force, asserting that it represents a critical reform for policymakers to revitalize economies, especially amid the weakest medium-term growth outlook in over three decades.

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