Africa urged to address issue of aligning fiscal and monetary policies

African policymakers are being urged to focus on striking a delicate balance between fiscal and monetary policies as uncertainty looms over the global economy. Abebe Aemro Selassie, Director of the IMF's African Department, emphasized the importance of finding this balance during an interview with CNBC Africa. Selassie highlighted the increasing debt levels in sub-Saharan Africa, particularly in countries heavily reliant on commodities whose prices have been on a downward trend. Despite the rising debt levels, the average debt across the region remains manageable, but the challenge lies in managing the debt while still investing in crucial sectors like health, education, and infrastructure. Policymakers must navigate this fine line between investing in necessary sectors and avoiding unsustainable debt levels. One common justification for borrowing has been infrastructure development, but questions arise about the return on investment in some projects. Selassie stressed the significance of capturing the return on investment through effective tax systems to ensure repayment. Addressing the need to build strong institutions, Selassie noted the considerable progress in macroeconomic institutions over the past few decades. Central banks are more focused on inflation targets, promoting stability, and coordination between fiscal and monetary policies has improved. The balanced macroeconomic management has contributed to enhanced growth performances in many African countries. Despite the improvements in macroeconomic institutions, a paradox persists in many African economies with contractionary monetary policies and expansionary fiscal policies simultaneously. Selassie attributed this dynamic to addressing infrastructure bottlenecks in some countries, leading to an expansionary fiscal stance. However, he underscored the importance of maintaining a focus on inflation to ensure stability and growth. While monetary policies have generally been aimed at controlling inflation rates and reducing volatility, Selassie highlighted the significance of keeping inflation in check within a single-digit range. By focusing on this, he argued that monetary policy cannot be classified as overly tight.