IMF update

 

Dear MARIA,   In today's edition, we highlight: How to stabilize Africa's debt How Nigeria can unlock its economic potential F&D magazine: We need a new growth compact Seychelles' path to macroeconomic stability and resilience, and more COUNTRY FOCUS How to Stabilize Africa's Debt (Credit: SAYEDHUSSEN/IMF Photo, poco_bw & da-kuk/iStock by Getty Images) 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. The 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, write the IMF’s Athene Laws, Thibault Lemaire, and Nikola Spatafora in a new Country Focus article.   Contrary to perception, countries in the region have often been able to stabilize or reduce their debt ratios without debt restructuring. And these episodes have occurred even amid an unfavorable external environment. 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.   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, the authors write. Read the Article COUNTRY FOCUS How Nigeria Can Unlock Its Economic Potential (Credit: Ebunoluwa Akinbo/IMF Photo & Bolaji Alonge/iStock by Getty Images) Over the past two years, Nigeria—Africa’s most populous country—has implemented difficult reforms to tackle long-standing obstacles weighing on the economy. By liberalizing the foreign exchange market, halting central bank financing of the fiscal deficit, and reforming fuel subsidies, Nigeria has seen improvements, such as increased international reserves and access to foreign exchange in the official market, write the IMF’s Axel Schimmelpfennig and Christian Ebeke in a new Country Focus article. As discussed in the Fund’s ’s latest annual economic health checkof the West African nation, the right policies can help Nigeria realize its potential as an African and global economic powerhouse.   While progress has been encouraging, significant challenges remain. Inflation still exceeds 20 percent. Poor infrastructure, especially for electricity, inhibits economic activity. Poverty and food insecurity remain high. Nigeria lacks an effective social safety net to cushion the impact of shocks on the most vulnerable. In addition, the global environment is posing new challenges with elevated uncertainty and high borrowing costs. Nigeria is especially affected by volatile international oil prices since oil revenues account for a large proportion of government revenues—a figure that stood at 30 percent in 2024.   To address these challenges, Nigeria should focus on three key priorities, the authors write. First, the country needs stronger and more sustained growth to lift millions of people out of poverty and food insecurity, which is what the authorities are focusing on. Second, as an essential ingredient for economic development, Nigeria needs an effective budget framework. And third, the government should continue to increase domestic revenues. Read the Article F&D MAGAZINE We Need a New Growth Compact (Credit: Chantal Jahchan) Policymakers are grappling with how to boost growth and expand opportunities. Early in the last decade, the question was whether flagging growth was the result of years of technological stagnation. It was a different era, following the global financial crisis. But now is an appropriate time to revisit that question, Pierre-Olivier Gourinchas, the IMF’s chief economist, writes in F&D.   Countries in the 2010s were united in addressing the aftermath of the financial crisis, and they had a common vision. Initiatives that emerged, such as prudential financial regulation, built future resilience. Today, the geopolitical landscape is under enormous strain, consensus is more elusive, and the alarming downward trend of potential growth persists.   The glass may seem half empty, but it’s actually half full, Gourinchas writes: Productivity can be raised by addressing entrenched structural constraints that hold back innovation and by exploiting recent technological breakthroughs. Read the Article COUNTRY FOCUS Seychelles' Path to Macroeconomic Stability and Resilience (Credit: Artem Stepanov, znm & Dark_Eni/iStock by Getty Images) Seychelles—a nation of 115 islands in the Indian Ocean—today enjoys a comparatively high degree of economic stability. Inflation is below 2 percent, real GDP has largely recovered from the pandemic, public debt is on course to reach the government’s target of less than 50 percent of GDP before 2030, and per capita income is the highest in Sub-Saharan Africa. But this stands in stark contrast to the country’s fortunes twenty years ago when it faced an economic crisis. What’s behind this turnaround?   In the mid-2000s, the country faced severe macroeconomic challenges due to high public spending, constrained revenues, and a rigid state-led economy. By 2008, public debt exceeded 192 percent of GDP, and foreign reserves were critically low. The global financial crisis compounded these issues, leading to a default on foreign debt, the IMF’s Hany Abdel-Latif, Pedro Maciel, Henry Quach, and Todd Schneider write in a new Country Focus article.   In response, the government, supported by the IMF and other partners, implemented comprehensive reforms such as floating the rupee, consolidating public finances, and reforming state enterprises. These actions led to a reduction in inflation, restoration of foreign reserves, and a decline in public debt. Investor confidence was rebuilt, and the country shifted focus to sustainable growth.   “Seychelles’ economic record highlights the importance of sound macroeconomic management and institutional strengthening in achieving and sustaining economic prosperity. Its journey offers valuable lessons for other small economies aiming at building resilience in an increasingly uncertain global landscape,” the authors conclude. Read the Article Thank you very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.   Miriam Van Dyck  Editor | IMF Weekend Read   mvandyck@IMF.org Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431