IMF calls for strategic fiscal policy to support vulnerable

The International Monetary Fund (IMF) is calling upon African governments to implement strategic fiscal policies in the face of escalating challenges, particularly with the ongoing food and energy crises. According to the IMF's October 2022 Fiscal Monitor, governments are urged to prioritize protecting vulnerable groups through targeted support while maintaining a tight fiscal stance to combat inflation. The current global landscape has brought about numerous shocks to the economy, including soaring prices of essential commodities, exacerbated by the conflict in Ukraine. Global inflation is on the rise, prompting central banks to take action, while governments are grappling with managing rapidly changing financial conditions. Paulo Medas, the Division Chief at the IMF's Fiscal Affairs Department, emphasized the need for governments to address these immediate challenges while also considering long-term issues such as climate change and sustainable development goals. The fiscal pressures faced by African countries have intensified significantly due to heightened global financial conditions, making borrowing more difficult and expensive. High inflation rates further complicate fiscal policy decisions. While deficits have been gradually decreasing since the onset of the pandemic, debt concerns are mounting, with a significant number of low-income African countries nearing debt distress. The IMF stresses the importance of African governments establishing a consistent medium-term fiscal framework post-pandemic to navigate these complexities effectively. This framework should entail close coordination between fiscal and monetary policy to combat high inflation, with fiscal policies complementing central bank efforts to stabilize prices. By committing to managing debt vulnerabilities over time, governments can adopt a gradual approach to fiscal tightening, balancing the need to assist vulnerable populations with addressing debt risks. Reflecting on lessons learned from the COVID-19 pandemic, Medas underscored the crucial role of well-planned fiscal interventions in supporting individuals and households during times of crisis. Preparing mechanisms such as unemployment benefits and targeted transfers in advance can facilitate a swift response to shocks. However, the efficacy of fiscal support measures is contingent on the prevailing economic environment. Unlike the pandemic period characterized by low inflation and interest rates, countries now face limited fiscal space, high debt levels, and soaring inflation rates, necessitating more targeted fiscal policies focused on aiding the most vulnerable segments of society. In light of these challenges, governments must establish clear priorities to allocate resources effectively. Key areas of focus may include addressing urgent needs such as food security, climate-related issues, and bolstering tax revenues, especially in low-income countries across Africa. The IMF's recommendations align with the current conditions faced by African nations, advising policymakers to strike a delicate balance between providing necessary support to mitigate crises and upholding fiscal stability to ensure long-term sustainability.