Africa contingent liabilities pose hidden fiscal risks

Subject

The risks posed by contingent state liabilities in Africa.

Significance

IMF warnings on the macroeconomic risks posed by contingent liabilities globally are especially pertinent in sub-Saharan Africa (SSA). The financial crises facing numerous state utilities and pension schemes threaten the already fragile fiscal positions of numerous states. This also raises doubts about the feasibility of ambitious debt-funded public investment programmes.

Impacts

• 'De-risking' contingent liabilities, eg by improving state entities' management, will be hard absent the required skills and political will.
• Declining oil prices will erode crude exporters' (often already weak) fiscal buffers, reducing their ability to manage liability risks.
• In South Africa, achieving the tighter fiscal stance necessary for macroeconomic stability could be hampered by public sector wage demands.