IMF’s Selassie reacts to scrapped VAT hike in S.Africa

The International Monetary Fund's Abebe Aemro Selassie recently reacted to South Africa's decision to scrap its proposed value-added tax (VAT) hike, shedding light on the importance of domestic revenue mobilization in the Sub-Saharan Africa region. Selassie emphasized the necessity of finding sustainable solutions to address pressing spending needs without solely relying on borrowing. The region has witnessed significant investments in infrastructure over the past decade, leading to positive outcomes in areas like education and healthcare. However, the returns on these investments have not translated into increased tax revenue, causing debt levels to rise and posing challenges for economic stability. Selassie stressed the need for governments to explore alternative methods like revenue mobilization to fund development initiatives while avoiding detrimental spending cuts. He highlighted the complexities involved in revenue mobilization, including political engagement, communication, and building societal consensus. Selassie underscored the role of the IMF in providing guidance and support to countries seeking to enhance their revenue generation strategies. Additionally, he discussed the Global Sovereign Debt Roundtable, an initiative aimed at facilitating debt workouts through collaboration between creditors and debtors. Selassie acknowledged the contentious nature of debt restructurings and emphasized the importance of establishing clear principles and parameters to guide the process. Overall, Selassie's insights underscored the challenges and opportunities associated with domestic revenue mobilization in Sub-Saharan Africa, emphasizing the critical need for effective and sustainable financial management strategies.