The International Monetary Fund (IMF) says the Continental Free Trade Agreement signed recently in Kigali should help the African economies deepen trade, facilitate the much sought regional integration and subsequently boost the economies.
“We think that the CFTA when fully implemented coupled with reforms in non- tariff barriers, facilitating infrastructure to allow goods to move to each other should facilitate, encourage and help allow connect, deepen and expand markets, which countries can trade,” said Abebe Aemro Selassie, Director of the African Department on Friday in Washington DC.
Selassie was briefing the press on the developments in the region at the Spring meetings of the World Bank and International Monetary Fund (IMF).
“We strongly welcome the CFTA that was recently reached in Kigali,” he stated, adding that “it is a potentially game changing initiative that could boost intra African trade and income if fully implemented.”
In recent years, there has been a significant improvement in intra-Africa Trade, which has moved up from about below 10 percent to now almost 20 percent of the region’s trade.
“And what’s interesting about the trade is that much of what Africa trades with each other tend to be more manufacturing type goods, exactly the kind of more diversified exports that our countries are seeking.”
He however, stressed that trade agreements always have its pros and cons but that, overall, the IMF believes that that the “CFTA is very important initiative Sub-Saharan Africa is seeing a modest pickup in growth.
Meanwhile, economic growth in sub-Saharan Africa is projected to pick up modestly from 2.8 percent in 2017 to 3.4 percent in 2018, according to the IMF.
The growth pickup has been largely driven by a more supportive external environment, including stronger global growth, higher commodity prices, and favorable financing conditions.
The IMF, is however, concerned that countries that are home to one-third of the region’s population saw per capita incomes fall in 2017 and that most of them are projected to witness a further decline this year.
According to the Fund, the record $8.8 billion Eurobond issuances, in the first quarter indicates significant improvement in access to international capital markets.
The strong external positions reflect both global developments and, in some cases, improved policy frameworks, the Fund explained.
Against this backdrop, macroeconomic vulnerabilities have also risen. The IMF is also worried that public debt ratios are on the rise, with about 40 percent of low-income countries in the region now in debt distress or at high risk of debt distress with about half of the countries resource-based economies.
The IMF has therefore urged SSA economies to sustain an inclusive growth which requires a stable macroeconomic environment.
“Fiscal policy needs to strike a balance between debt sustainability and ensuring adequate space for key infrastructure and priority social spending”.
“Oil-exporting countries need to continue to forcefully implement their fiscal consolidation plans and advance economic diversification, taking advantage of the respite provided by the recent pickup in commodity prices.”
The Fund believes that most countries in the region, especially Nigeria have considerable potential to collect higher revenue to shore up the current low revenue-to-GDP ratio.
Responding to questions on revenue mobilization, Abebe noted that the challenge in Nigeria and the economic priority is to increase tax to GDP ratio, which is below 5 percent, up to ten percent or even higher level. Nigeria currently has about tax to GDP of about 6 percent.
“If you look at the average tax to GDP countries in the region, it’s about 15 percent, so I don’t see any reason why Nigeria shouldn’t really be pushing towards that target.”
He said this is necessary to be able to address the tremendous investment needs in education, health and many other priorities that the government has.
“So it’s not really revenue collection just for revenue collection sake but the development objectives that the government itself has laid out.
“The challenge in Nigeria has been a relatively easy source of revenue. There has been less emphasis on tax collection, so using this avenue to enhance tax collection is important.
“As to how that is to be done, it’s a deeply domestic and political issue. It’s for the government to choose what appropriate tax handles. We can provide advice and suggestions but it is up to the government to find how best to optimise tax collection and in what manner,” Abebe stated.
