The IMF’s Regional Economic Outlook for sub-Saharan Africa has the sub-title Domestic Revenue Mobilization and Private Investment although the headline for the media has generally been the rise in sovereign debt distress. The rise of course is one consequence of inadequate revenue mobilization. The headlines have acquired additional potency at a time when events in Argentina have prompted concerns about two asset classes: emerging market sovereign debt, both foreign and local currency. The policy rate has been hiked to 40% and IMF support sought.
- The regional outlook cautions that 40% of low-income countries in SSA are debt distressed or at risk of it. Further, SSA governments, including some in the low-income bracket, raised US$7.5bn from Eurobond issuance last year. An additional US$11.0bn has been, or may be raised in H1 2017.
- The Fund’s salutary warning is aimed at SSA, debt distressed, close to the trap or with some breathing space. The challenge for the FGN is that replacing the rentier economy with a sustainable production-based model requires very heavy infrastructure investment. Its own resources, combined with those of its traditional partners, DFIs and the private sector are insufficient, hence the surge in borrowing.
- One table in the outlook shows that Nigeria’s tax/GDP ratio of 5.9% in 2015 was SSA’s lowest. Another puts its government revenue excluding grants in 2017 at 6.0%, compared with 17.0% for SSA as a whole. Because its revenue inflows have been very low, its expenditure (11.7% of GDP last year, according to the outlook) has lagged the sub-region’s 22.5%.
Sources: Debt Management Office (DMO); FBNQuest Capital Research
- Borrowing has its own pitfalls but we do not see another way of breaking out of the rentier model, and being prepared for the next downturn in the oil price or other external shock.