IMF’s Gasparon on Africa’s fiscal policy outlook in 2021

2020 was a pivotal year for fiscal policy across the globe as countries raced to respond to the unprecedented challenges brought about by the COVID-19 pandemic. With $16 trillion in fiscal actions announced in the last twelve months, the measures taken were crucial in containing the virus, supporting healthcare systems, and providing lifelines to vulnerable households and businesses. However, these efforts also led to a significant increase in debt levels, underscoring the importance of sound public finances for effective fiscal policy deployment. The Director of the Fiscal Affairs Department at the International Monetary Fund (IMF), Vitor Gaspar, emphasized the importance of countries with better access to financing and stronger buffers being able to provide larger fiscal support and potentially experience faster recoveries. As the world grapples with an uneven recovery, flexibility and agility in fiscal policy are essential, tailored to individual country circumstances. In the context of Africa, where countries are at various stages of economic recovery, the imperative of long-term development remains a priority. Gaspar highlighted the need for credible fiscal frameworks that align with development priorities and enable countries to navigate the uncertain environment effectively. When it comes to conversations with member countries in Africa, the IMF is focusing on key areas such as improving state capacity, enhancing tax systems for revenue generation and growth, managing public debt effectively, investing in people and infrastructure, and exploring synergy between public and private initiatives. These efforts aim to make Africa an attractive destination for investments and economic activities. On the issue of corporate taxation, Gaspar reiterated the IMF's support for a global minimum corporate income tax rate, emphasizing the need to address the trend of declining tax rates and ensure that multinational companies pay their fair share. The call for international cooperation on corporate taxation, including a minimum tax rate agreement, is viewed as vital for enabling countries to access the necessary revenues for sustainable development. Gaspar acknowledged concerns about how a global corporate tax rate could impact countries in Africa that historically used lower tax rates to attract investments. However, he underscored the importance of balancing growth with fairness in taxation, highlighting the significance of stopping the 'race to the bottom' in corporate tax rates. The IMF's stance is rooted in the belief that any global tax agreement should consider the interests of developing countries and limit tax competition to support their revenue needs. Overall, the IMF's advocacy for a global corporate tax rate reflects a broader commitment to promoting financial stability, sustainable development, and equitable fiscal policies worldwide. By addressing challenges related to taxation and fiscal frameworks, the IMF aims to foster a more inclusive and balanced recovery from the economic impact of the pandemic.