Sub-Saharan Africa’s oil producers need annual fiscal surpluses -IMF

Oil manufacturers in Sub-Saharan Africa (SSA) have been urged by the International Monetary Fund (IMF) to sustain 10-year budget surpluses of up to 1% each year.

As per a recent publication from the IMF’s African division, the oil manufacturers in the region should strive for reserves between 5 and 10% of GDP to cope with substantial variations in oil prices.

The IMF foresees that oil revenues may decline sharply as countries transition to low-carbon energy alternatives. The article states:

“By 2030, oil revenues in the region might decline by as much as a quarter, and by 2050, by half. Establishing reserves now would assist the region’s oil exporters in navigating the shift toward clean energy while managing oil price fluctuations.”

The article referenced the IMF’s October 2022 SSA Regional Economic Outlook to underscore how pro-cyclical fiscal policies and inadequate savings are driven by fluctuating oil prices.

The report indicates that since 2011, oil exporters in SSA have been expending more than 100% of their oil revenues on average, necessitating heightened borrowing or exhausting financial reserves to sustain spending during challenging times in the future.

For almost half of the oil exporters in sub-Saharan Africa, the IMF anticipates that these trends are likely to continue through 2022.

Impact of oil price volatility:

Sub-Saharan African oil exporters have historically witnessed slower growth patterns, increasing 2 percentage points less annually from 2011 to 2020 compared to non-resource-intensive countries, and experiencing almost double the growth volatility.

As noted in the IMF report by the World Bank, total debt servicing in oil-exporting countries was also nearly twice as significant as in other sub-Saharan African nations over the last decade.

President Muhammadu Buhari sought the National Assembly’s endorsement on Wednesday, December 21, for a N819.54 billion supplementary budget to restore the infrastructure that the 2022 floods had damaged in various states. Nigeria’s overall debt will rise to N22.57 trillion due to the added debt.

The IMF suggests that the primary objectives for resource-driven economies to compensate for expected revenue deficits are improving public spending efficiency, increasing domestic revenue, and reforming energy subsidies.

The Fund additionally advocates the removal of energy subsidies, which disproportionately benefit higher-income individuals, averaging 21% of GDP in oil-exporting nations within sub-Saharan Africa.

The IMF proposes the following measures for resource-dependent countries to tackle their fiscal obstacles: