- IMF urges countries to broaden the tax base, increase tax rates where applicable, reduce arbitrary exemptions.
- Lender seeks a predictable and progressive tax code, coupled with corporate income and property tax collection.
- IMF says strengthened tax collection capacity, integrity and accountability, including through digitalization, can yield significant revenues for countries.
A weakening demand across the world markets, lower prices of key commodities and tight financial markets are set to deal a body blow to economic growth in Africa in 2025. Faced with this uncertainty, the International Monetary Fund (IMF) is proposing a number of measures for policymakers including increasing taxes, labour reforms, and changes in the running of State-Owned Enterprises.
According to the International Monetary Fund (IMF) latest projections, Sub Saharan Africa’s growth is set to ease to 3.8 per cent this year before posting 4.2 per cent expansion next year. This reflects a downward revision of 0.4 percentage point and 0.2 percentage point, respectively from the global lender’s earlier projections attributable to slowdown driven in by turbulent global conditions.
“Any further increase in trade tensions or tightening of financial conditions in advanced economies could further dampen regional confidence, raise borrowing costs, and delay investment,” explained Abebe Selassie, Director of the African Department at the IMF’s 2025 Spring Meetings.
Why IMF sees slower growth in Sub-Saharan Africa
For Africa, the slowdown in economic growth comes at unfortunate period. Countries across the region were starting to experience sights of recovery, riding on policy shifts in 2024. However, with U.S. President announcing sweeping tariffs and the shutdown of key aid avenues, policymakers in the region are now staring at uncertain future with demand in key markets worsening.
“Moreover, official development assistance inflows into sub-Saharan Africa will likely decline going forward, placing an added burden on the region’s most vulnerable,” stated IMF in its April 2025 Regional Economic Outlook: Sub-Saharan Africa report.
“These external headwinds come on top of longer-standing vulnerabilities. High debt levels constrain the ability of many countries to finance essential services and development priorities. While inflationary pressures have moderated at the regional level, quite a number of countries are still grappling with elevated inflation, necessitating a tight monetary stance and careful fiscal policy,” explained IMF’s Abebe Selassie.
How countries in Africa can counter economic fallout
Faced with these circumstances, the IMF is urging policymakers across economies to move with speed in calibrating the relevant policies that can help “balance growth, social development, and macroeconomic stability” during the years under focus.
The Bretton Woods institution noted that the development of a robust fiscal and external buffers for economies will be more important than ever. The lender however cautioned that these fiscal rules adopted must be “underpinned by credibility and consistency in policymaking.”
More specifically, the IMF is calling on countries across Africa to step up in mobilizing domestic revenue while also enhancing systems across government to help improve efficiency in spending.
“The private sector will need to do much of the heavy lifting to achieve long-term development goals. Structural reforms that enhance governance, improve the business climate, and support regional trade integration, together with greater investment in human capital and infrastructure, can create a more fertile ground for the private sector to grow,” the IMF explained in its April report.
What’s more the IMF called on countries to broaden the tax base, increase tax rates where applicable, reduce arbitrary exemptions and simplify the tax code as part of measures to cut reliance on costly credits.
“Also, a predictable and progressive tax code, together with greater emphasis on corporate income and property tax collection, can help ensure fair burden sharing. Finally, strengthened tax collection capacity, integrity and accountability, including through digitalization, can yield significant revenues (Nigeria, Senegal).”
Additionally, countries have been called upon to firm up public financial management structures while also enhancing fiscal frameworks to lower the cost of borrowing for businesses and individuals.
Evidence suggests that about 30–40 per cent of resources allocated to public infrastructure in developing countries are lost because of inefficiencies, the IMF stated, adding that, “these losses can be reduced through better governance and public financial management, including by improving the framework for planning and implementing infrastructure projects, addressing corruption, and greater transparency.”
Removing ghost workers from government payroll
Similarly, identifying and removing ghost workers can help contain the wage bill in counties such as Chad and Mozambique, the lender noted. Further, digitalization of processes such as automated budget payments or the adoption of an e-procurement systems has the potential to enhance fiscal transparency across economies while also improving spending.
“Guinea-Bissau, for example, has employed blockchain technology to improve transparency and better manage its wage bill,” IMF explained.
“Reforms that enhance governance, improve the business climate, and foster regional trade integration are also needed to lay the groundwork for private sector–led growth. High growth is imperative to engender the millions of jobs that are needed,” noted IMF’s Abebe Selassie.
Citing South Africa, the IMF said that poorly managed State Owned Enterprises can negatively impact a country’s fiscal risks and sustainability as they keep burdening the taxpayers by seeking operating subsidies, large capital injections, and sudden unexpected bailouts.
“Better financial monitoring and improved management, oversight, and transparency are key. In addition, private sector participation in essential sectors (South Africa) or outright privatization of SOEs (Ethiopia) can, in some circumstances, open up fiscal space while improving efficiency,” the IMF said.
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