Fiscal consolidation and SDGs attainment
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In recent years, the debt situation in many African countries has become increasingly precarious. According to the IMF, over half of low-income countries in sub-Saharan Africa are either in debt distress or at high risk of it. The COVID-19 pandemic, the war in Ukraine, rising global interest rates, and currency depreciations have all contributed to a sharp deterioration in debt sustainability across the region. In response, several governments have implemented fiscal consolidation measures—often under the guidance of international financial institutions—to stabilize public finances and restore macroeconomic balance. However, these austerity measures frequently involve spending cuts in critical sectors. This raises an important policy question: How does fiscal consolidation programs affect the attainment of the Sustainable Development Goals (SDGs) in African countries ?
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AHOUAKAN Ehouman Williams V,Ivory Coast,SRO/WA said in Fiscal consolidation and SDGs attainment:
This raises an important policy question: How does fiscal consolidation programs affect the attainment of the Sustainable Development Goals (SDGs) in African countries ?
My personal reflection on this. When it comes to fiscal consolidation the government is faced with at least two glaring options, one-to reduce government spending and two- to increase taxes. The second option is a bit tricky especially when referring to the traditional tax revenue approach which is increasing tax rates that is met with negative public outcry hinged on the manner in which public funds have been embezzled and misused in the past. The first option, which is governments introducing austerity measures to cut down on their spending, that is where the direct effect on attaining SDGs can be seen. For example, generally governments have the mandate to provide health and education for their citizens, if you cut spending, it means these critical sectors that are relating to attaining a number of SDG goals will be affected.
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AHOUAKAN Ehouman Williams V,Ivory Coast,SRO/WA You're right, especially since one of the recommendations from international bodies, including UNECA, is to increase domestic revenue by broadening the tax base and raising taxes in countries that have not yet reached the optimal tax rate (15%). While this may offer a solution, it is important to realize that African countries have an informal sector that represents between 25% and 65% of their GDP. In countries like the Comoros, this rate goes up to 80%. In this context, the proposed solutions only address a segment of African economies. There may be a need to rethink the African economic model and the structure of our economies by integrating (or at least attempting to integrate) the informal sector into analyses. I believe such an approach would help recover domestic revenues that currently escape the system and allow greater investment in government spending.
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AHOUAKAN Ehouman Williams V,Ivory Coast,SRO/WA According to Barro's (1974, 1979) theoretical model, which predicts an inverse relationship between public debt and economic growth, the way fiscal consolidation programs affect the achievement of the Sustainable Development Goals (SDGs) in Africa can be analyzed by considering several fundamental mechanisms.
Barro's theory posits that excessive borrowing can, in the short term, stimulate economic activity if the debt financed is used for productive investments or to support consumption, thereby promoting growth. However, when this debt becomes unsustainable, the need to repay principal and interest leads to austerity measures, often involving cuts in public spending. In the African context, such measures, such as reductions in health, education, or infrastructure spending can have detrimental effects on fulfilling the SDGs, which aim precisely to improve these essential sectors. Based on Barro’s framework, we can say that fiscal tightening limits governments’ capacity to stimulate long-term growth. Reducing public investments in key areas like health or education may slow progress toward SDG 3 (Good Health and Well-being) and SDG 4 (Quality Education). Consequently, even if fiscal consolidation improves short-term debt sustainability, it risks compromising progress on several SDGs by slowing down improvements in socioeconomic conditions. Furthermore, future growth also depends on the credibility of economic policies and macroeconomic stability. Austerity measures can help restore market confidence and support debt management, but their immediate impact on poverty and inequality might harm SDG 1 (No Poverty) and SDG 10 (Reduced Inequalities). Cutting social expenditures can exacerbate poverty, especially in a context where vulnerable populations are already severely affected by economic crises and the pandemic. Barro’s model suggests that if fiscal consolidation is implemented prudently and strategically targeting investments in human capital and infrastructure, it could establish a framework conducive to sustainable long-term growth, enabling better achievement of SDGs. This, however, would require effective governance and strengthened institutional capacity to minimize negative short-term effects while maximizing long-term benefits.
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Many thanks for your contributions — you're absolutely right. The challenge lies in the fact that domestic revenue mobilization is a long-term process requiring deep structural reforms, such as modernizing tax administrations, broadening the tax base, and reducing informality. In contrast, fiscal consolidation measures are often implemented in the short term, primarily to reassure donors or markets, or to strengthen the credibility of economic authorities.
Do you think this temporal mismatch between the long-term nature of tax reforms and the short-term pressures of consolidation could lead to budget cuts in essential social sectors — sectors that are nonetheless critical for achieving the SDGs?
