Experts and government officials discussed strategies for mobilizing internal resources to cope with the growing debt of African countries and allow the continent to recover better after the Covid-19 pandemic.
The webinar, titled “Exploring the Link Between Fiscal Policies and Debt Management”, is the second in a series of webinars on African debt management organized by the African Development Bank with the support of the Government of Japan. It brought together a high-level panel made up of government experts, institutional specialists and civil society actors, and registered 285 participants.
According to the director of the governance and public finance management department at the African Development Bank, Abdoulaye Coulibaly, it is necessary “to start a discussion on how to reduce dependence on debt, but also on how fiscal policies and tax policies in particular can contribute to avoiding a situation of debt distress.”
“The problem is that governments must find resources not only to mitigate the impact of debt but also to find additional resources to continue to meet public expenditure,” noted Dr Nara Monkam, research director of the Forum on the African Tax Administration. According to her, to improve the tax resources of African countries, one of the solutions would consist of improving the efficiency and effectiveness of the tax administration, rationalizing tax expenditures, digitalization, effectively combating tax evasion, and illicit financial flows and dealing with corruption and fraud. Governments could increase the tax base by raising taxes in telecoms, banking, insurance, real estate, mining, the blue economy and especially in the new digital sector. Property tax is also an important source of revenue to explore.
Philippe K. Tchodie, Commissioner General of the Togolese Revenue Office and chairman of the African Tax Administration Council, said his country was working on a strategy to bring down its public debt, currently classified as “medium to high risk” to place it at “medium to low risk”. The Togolese government intends to implement several measures: increase the tax on land and cars, rationalize tax expenditures, strengthen the supervision of large companies to limit the flow of transfers, and incentives for foreign direct investment.
A country rich in non-oil mineral resources, Namibia tries to balance taxes and debt that grows due to fluctuating commodity prices. According to Penda Ithindi, Senior Technical Economic Advisor to the Namibian Minister of Finance, sustainable and inclusive economic growth is necessary to reduce public debt in the long term. “Tax policies should support economic agents to invest and produce in order to ensure long-term growth,” he suggested. “For us, to reduce debt over the long term, growth must be strengthened, shared and sustainable. Debt is a necessary evil; it is useful as long as it can impact spending on infrastructure and other public investments.”
From the ensuing discussions, it appears that Africa has much greater potential and capacity to collect taxes, relatively larger domestic markets, and better borrowing options in external markets. Although still weak in some places, governance has also improved. The idea is to help African governments rediscover their potential and their capacity to finance their own needs through adequate national resource mobilization policies, reinforced by the promotion of citizen engagement. In this context, exploring the links between fiscal policies and debt management in post-Covid-19 Africa as a means of achieving debt sustainability becomes highly relevant. Other new trends, including the establishment of a domestic bond market, and other innovative sources of income, such as digital taxation, should be explored, according to the participants.
According to Alexandra Readhead, head of tax and extractive industries at the International Institute for Sustainable Development, loans backed by mineral resources contribute to high levels of indebtedness in some countries, hence the need to make these types of agreements more transparent and reform mining taxation. “Using these types of transactions correctly can be very effective in developing important infrastructure. However, they lack transparency. There is no competition.” she said.
Leila Mokadem, Director General of the African Development Bank’s regional office in Southern Africa, concluded the meeting by suggesting there was an urgent need to mobilize domestic resources to limit an increase in debt through different mechanisms such as the taxation of natural resources and the broadening of the tax base.