The IMF has urged South Africa and other African states to consider enhancing their tax bases or cutting spending to fund development, rather than taking on new debt in the current climate.
Asked how South Africa could fund its R75bn medium-term shortfall without additional income from the now rescinded VAT hike, Abebe Aemro Selassie, the director of the IMF’s Africa department, said the country was in a bind that was typical of nations on the continent with elevated borrowing costs.
“Ultimately, when issues like this arise, they are deeply domestic, political issues to be resolved as to what the best way to do the financing is. If a tax rate increase, or a particular tax is not possible, then maybe finding ways to expand the tax base… or if all of those are not possible, then maybe revisiting spending priorities.”
He also urged African nations to spend more effectively on development, noting that over the last 10 to 15 years, governments in the region have made a significant effort to invest in infrastructure needs with “very positive” outcomes.
“But we have also seen that despite a lot of investment… in electricity generation capacity, electricity coverage in our countries, many roads being built, the returns of all of these investments have not been captured in the tax revenue, which is one of the pressure points where debt levels have gone up and the interest-to-revenue debt ratio has also been rising.”
Meanwhile, Svenja Schulze, Germany’s minister for economic co-operation & development, said President Donald Trump’s administration could not determine the mission of the World Bank because the global lender’s goals are based on agreement by many countries.
“This is not an American bank, it’s a world bank,” she said in an interview with Reuters on the sidelines of the IMF and World Bank spring meetings in Washington.
US treasury secretary Scott Bessent on Wednesday called on the IMF and World Bank to refocus on their core missions of macroeconomic stability and development, arguing they have strayed too far into "vanity" projects such as climate change.
“That is the founding mission of this bank, to take care of exactly these issues and, therefore, we will now have to talk about what the US actually wants,” Schulze said.
Certain euphemisms are starting to be used in international institutions, such as “weather developments” instead of “climate change”, and words like “gender” or “climate” or “inclusion” are being avoided.
The US is the largest single shareholder of the World Bank, with just under 16%. Trump’s administration has cancelled billions of dollars in foreign aid, including funding for projects that provide lifesaving care for millions of people in some of the world’s poorest countries.
Schulze noted that these cuts have caused “a very large loss of trust” in developing countries, adding that rebuilding trust and showing that the World Bank and Germany were are reliable partners were her goals for this week’s meetings.
Germany provided €30bn (R640bn) (0.67% of its gross national income) for development aid in 2024, but failed to meet the agreed UN target of 0.7% of GDP, the official development assistance (ODA) quota.
The agreement reached by the incoming German coalition includes an “appropriate reduction in the ODA quota”, which comes after years in which the budget was constantly reduced, according to the agreement.
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