IMF cautions African governments to boost domestic revenue before entering the African Continental Free Trade Agreement

The International Monetary Fund (IMF) has encouraged African governments to create policies that would boost domestic revenue mobilisation before they enter the African Continental Free Trade Agreement (AfCFTA).

IMF

According to the IMF, the AfCFTA will be a game-changer on the continent as it will increase the GDPs of member countries due to an expected increase in inter-regional trade.

However, the IMF warned that some countries may lose up to 5 percent of their GDP to revenue losses from the scrapping of tariffs that will come with the implementation of the continental trade agreement.

This was contained in the Regional Economic Outlook, sub-Saharan Africa report which said that “On average, the revenue loss may amount to about 0.5 percent to 0.8 percent of GDP, depending on the assumed elasticities. However, in a few countries, revenue losses may be as large as 3 to 5 percent of GDP. For these countries, authorities should define clear domestic revenue mobilisation policies on entering the AfCFTA.”

The report shows that customs revenue is low in Africa and just a small portion of such revenue is coming from regional trade.

Between 2010 -2015, according to the IMF, the customs revenue of the continent averaged about 2.5 percent of GDP, which further represents 16 percent of total tax revenue.

Again, within the same period, most countries’ customs revenues averaged less than 2 percent of GDP, with the exception of a few countries that exceeded 5 percent of GDP. Ghana’s imports revenue, for the period under review, averaged about 3 percent; Liberia topping with more than 7 percent.

But with countries like Cote d’Ivoire, Malawi, Zambia, and Zimbabwe, imports from the region exceeded 35 percent of total imports, signalling risk of high revenue losses with the implementation of AfCFTA.

It is due to these reasons that the IMF is cautioning African governments to implement policies that will shoot their domestic revenues up before they enter the trade agreement.

“Deeper regional trade integration is also likely to adversely affect fiscal revenues in a few countries which will need to design domestic tax revenue-raising strategies while being mindful of possible growth and distribution effects,” it said.

The report encouraged agriculture-based and less diversified countries to combine trade policies with structural reforms that boost agricultural productivity to better leverage existing comparative advantage if they want to benefit from the regional trade agreement.

The report also urges for the development of a regional payment system, the introduction of swap arrangements across central banks, and the establishment of multicurrency clearing centres to facilitate and support trade integration.

JOIN OUR PULSE COMMUNITY!

Eyewitness? Submit your stories now via social or:

Email: news@pulselive.co.ke

Recommended articles

Amazing transformation of 21-year-old man bullied for being born different (video)

Amazing transformation of 21-year-old man bullied for being born different (video)

Sonko’s reaction as daughter Sandra Mbuvi goes international

Sonko’s reaction as daughter Sandra Mbuvi goes international

Eliud Kipchoge's special Sh20,000 earphones he can't live without

Eliud Kipchoge's special Sh20,000 earphones he can't live without

Abel Mutua's movie makes over Sh4M in 5 days

Abel Mutua's movie makes over Sh4M in 5 days

Vera imports Baby Diapers from US, Help rebuild Boniface Mwangi's house & other stories on #PulseUhondoMtaani

Vera imports Baby Diapers from US, Help rebuild Boniface Mwangi's house & other stories on #PulseUhondoMtaani

Sh79,000 per month jobs for Kenyans without degrees

Sh79,000 per month jobs for Kenyans without degrees

Davido and Chioma spotted together for the first time since rumoured breakup

Davido and Chioma spotted together for the first time since rumoured breakup

How Janet Mbugua's husband Eddie landed Sh240 million deal with Chinese investors

How Janet Mbugua's husband Eddie landed Sh240 million deal with Chinese investors

5 things you should never do to please a woman

5 things you should never do to please a woman