African countries need additional $638b annually to finance SDGs as they face debt distress
With 11 years to go in achieving the Sustainable Development Goals (SDGs), it is estimated that African countries will require an additional $638 billion annually to attain the goals. Meanwhile, some countries are falling into debt distress.
World leaders in 2015 adopted the 17 SDGs of the 2030 Agenda for Sustainable Goals which came into force on January 1, 2016. The new Goals apply universally to all countries and they are expected to mobilize to work towards ending all forms of poverty, end inequalities, tackle climate change, provide good health services, education for all, zero hunger and provide clean water and sanitation for all among others. It is also aimed at not leaving anyone behind.
But the need for African countries together to raise the estimated amount to fulfill the Goals, highlights the glaring gap that cannot be filled with the current trends in public revenues, savings and investment, Vera Songwe, the Executive Secretary of the United Nations Economic Commission for Africa (UNECA) said at the opening of the Experts Meeting at the 52nd session of the Conference of African Ministers of Finance, Planning and Economic Development being held in Marrakech, Kingdom of Morocco from March 20 to 26, 2019.
According to Songwe, the potential of Africa is, and has always been, promising.
“With a growing working-age population; abundant arable land and a multitude of other resources, the continent has all the pre-requisites for rapid economic transformation in the next decade,” she said.
She however pointed out that, ensuring the availability of adequate public resources and quality investments to drive structural change requires responsive policies that promote fiscal sustainability, optimize returns from economic activity, and enable economies to fully participate in an increasingly interconnected and globalised world.
“Rising global demand, increased commodity prices, investment and private consumption have moderately driven the rebound from the poor growth results of about 2.5 percent in 2016 to the current rate of 3.2 per cent.
However, the medium-term outlook of between 3 – 4 per cent for Africa is insufficient to stimulate quality investments that will generate jobs and accelerate inclusive growth. To do so, Africa needs to triple its current growth rate meaning investment must increase by between 5 – 10 per cent of GDP in order to achieve the SDGs,” she said.
Adding that, “this is more poignant especially given rising populations, an increasing culture of protectionism in global trade markets; and the sluggish growth of manufacturing – a key sector in the transformation process.
Also, as you are aware, it has been estimated that financing the SDGs will require an additional $638 billion annually, highlighting the glaring gap that cannot be filled with the current trends in public revenues, savings and investment.”
Dr. Songwe noted that as a result, African countries are already observing the financial pressure on governments as they seek to close this gap through external financing.
“The number of countries at high risk of debt distress – 18 in all – has more than doubled since 2013, while eight countries are already in distress.
If this pace continues there is a high risk of eroding the substantial progress made in reversing the high trend of indebtedness in African countries experienced at the beginning of this century,” she warned.
She also said, between 2000-2018, Africa had the lowest average ratio of government revenue to GDP of any region in the world at 24.5 per cent, compared to Latin America, for example, at 27.8 per cent., adding that, this is not due to lack of effort as over the last two decades, the number of African countries which have tax-to-GDP ratios under 15 percent fell by half – a significant achievement.
“Despite widespread tax reforms in Africa, results have been mixed largely due to structural factors such as informality, low per capita income and very small initial base of manufacturing and modern services.
By addressing capacity tax constraints, Africa could boost tax revenues by 3 per cent of GDP. In addition, by better aligning tax rates and revenues with business cycles, African countries can boost government revenue as a share of GDP by 5 per cent,” she said.
She noted further that, with just over a decade remaining to achieve the goals set out in Agenda 2030, it is imperative that the scope and mechanisms of domestic resource mobilization be revolutionised to bridge the financing gap, promote macroeconomic stability and limit costly external borrowing.
In his remarks, Adam Elhiraika, Head of the Macroeconomics Unit of the UNECA indicated that for trade to be beneficial to the continent, African countries need to have common macroeconomic policies that promote policy convergence.
The continent, he said, needs debt sustainability, adding that, considering the continent’s potential, the pace of growth is too slow.
Stephen Karingi, who is the Director, Regional Integration and Trade of the UNECA, indicated that the pace of regional integration is slow, and pointed out that stronger coordination is needed to achieve macroeconomic convergence in Regional Economic Communities.
“The African Continental Free Trade Agreement (AfCFTA) is the biggest demonstration of momentum for integration,” he said, however, he stated that trade at regional level is below potential.
Two more countries are left to ratify the Agreement to bring it into force. 21 countries are required to ratify the Agreement before it comes into effect, so far, 19 countries have ratified it.
By Emmanuel K. Dogbevi, in Marrakech, Morocco
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