The International Monetary Fund (IMF) said African exporters of oil, and commodities should remove subsidies and boost taxes to weather the slowest growth in more than two decades.
The Washington-based fund cut its 2016 growth forecast for Sub-Saharan Africa by more than half to 1.4 percent, from an initial forecast in May of 3 percent.
The director of IMF’s African Department, Abebe Selassie said growth could start to recover next year to 3 percent, only if the battered economies carry out fiscal reforms.
“The key risk is really whether or not countries will go ahead and do the required fiscal adjustments should they fail to do that I fear vulnerabilities will heighten and the crisis and the weak economic performance we have seen so far could get even more difficult,” he added.
Economies grew more than 5 percent in the decade leading to the commodity price drop but it is now being dragged by 23 resource-dependent nations like Nigeria, South Africa and Angola.
Nigeria, which is in its first recession for more than 20 years, has been seeking to widen its tax base, to offset lower revenues caused by the slump in oil prices.
“Now the good thing for Nigeria is that they have very low level of debt so Nigeria is a country where if we have coherent and consistent policy package it should be possible for them to get financing to support gradual and smother adjustment paths” said Selassie.
He noted that Zambia which has been hit by lower prices of copper, could save some money by eliminating fuel subsidies.
“Fuel subsides take up a huge amount of government resource and generally also they tend to be very regressive so the best way forward in addressing this really is to if it’s possible to eliminate this subsidies and put in place social protection programs for the people,” he said.
Kenya, a broad-based economy that is still growing at a robust 6 percent, was justified in expanding its fiscal deficit to invest in roads, power plants and other infrastructure.
According to Selassie, African nations needed to balance commercial debt, like Eurobonds, with other cheaper forms of financing from development institutions.