IMF Urges Nigeria and Sub-Saharan Africa to Embrace Blended Finance, Tax Reforms to Boost Sustainable Growth
The International Monetary Fund (IMF) has issued a stark warning to Nigeria and other Sub-Saharan African countries, urging urgent reforms in tax systems and debt management to counter rising fiscal vulnerabilities. The Fund cautioned that delays in implementing these reforms could threaten the region’s fragile economic stability and stall post-pandemic recovery. Its latest Regional Economic Outlook for Sub-Saharan Africa, titled “Holding Steady”, highlights inflationary pressures, weak access to finance, and mounting debt as key risks to sustainable growth.
The IMF emphasized that innovative financing mechanisms such as blended finance and debt-for-development swaps are essential to meet Africa’s growing development needs. Currently, blended finance inflows average only $6 billion annually, far below the level required for critical infrastructure, healthcare, and green energy projects. Blended finance works by combining concessional funding—like grants or low-interest loans—with private capital to reduce investment risk in priority sectors, including renewable energy in Tanzania, agriculture in Senegal, and healthcare initiatives in Nigeria.
Despite their potential, the IMF noted that weak regulatory frameworks, opaque debt data, and high domestic borrowing costs limit Africa’s access to these tools. The Fund stressed that scaling up blended finance and debt swaps requires credible policy frameworks, enhanced public financial management, and streamlined processes. It highlighted successful examples such as Côte d’Ivoire’s 2024 Debt-for-Education swap and Gabon’s 2023 Debt-for-Nature swap but noted that such initiatives remain rare and limited in size.
Nigeria, Africa’s largest economy, was singled out for reforms aimed at simplifying its complex tax system. The IMF recommended rationalizing exemptions, reducing arbitrary rates, and integrating the growing digital economy into the tax net. These measures aim to increase revenue collection without overburdening citizens, improve public trust, and reduce reliance on expensive domestic borrowing. Taiwo Oyedele, head of Nigeria’s Presidential Fiscal Policy and Tax Reforms Committee, recently affirmed that the government plans to simplify tax payments, cut overlapping levies, and expand compliance through digital tools.
The IMF concluded that successful reforms depend not only on sound policies but also on strong ownership by African leaders and engagement with citizens. Broad consultations, transparent communications, and framing reforms in terms of local benefits, such as city services funded by taxes, can increase public support. The Fund warned that without decisive action, rising domestic borrowing costs and poor debt management could undermine private investment and slow the continent’s economic recovery.
source: punch