{
  "title": "The Policymaker’s Trilemma",
  "publication": "IMF Blog, May 12, 2021",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2021/05/12/blog-the-policymakers-trilemma",
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  "summary": "Region: sub-Saharan Africa.",
  "sections": [
    {
      "heading": "Context and framing",
      "content": "- Region: sub-Saharan Africa.\n- Pandemic context: second wave eased earlier in the year, risk of further waves as winter approaches.\n- Global backdrop: global recovery well underway; key economies rebounding sharply; global trade improved; commodity prices higher; investment flows resumed.\n- Near-term outlook for sub-Saharan Africa: growth prospects described as somewhat more subdued while widespread vaccination remains out of reach."
    },
    {
      "heading": "The three challenges (the trilemma)",
      "content": "- Immediate challenges facing finance ministers:\n  - Meet increased spending needs.\n  - Contain a pronounced increase in public debt.\n  - Mobilize more tax revenues.\n- Tradeoffs: addressing one element typically comes at the expense of one or both of the others (e.g., higher spending requires more debt or higher taxes; boosting tax revenue can support spending or help contain debt)."
    },
    {
      "heading": "Demand for government spending — key findings",
      "content": "- Pre-existing development needs were already daunting in the context of rapid population growth.\n- The crisis setback: the region’s development path has been set back by almost a decade.\n- Labor market and poverty impacts in 2020:\n  - Regionwide employment fell by about 8½ percent in 2020 due to COVID-19.\n  - More than 32 million people were thrown into poverty.\n  - Disruptions to education have jeopardized the prospects of an entire generation of schoolchildren.\n- Distributional impact: a large proportion of the region’s most marginalized workers were concentrated in some of its hardest-hit sectors, adding to inequality.\n- Demographic pressure: by 2030 nearly one in two new entrants into the global labor force will come from sub‑Saharan Africa."
    },
    {
      "heading": "Rising concerns about debt — key statistics",
      "content": "- Public debt increased to almost 58 percent of GDP in 2020 — the highest level in almost 20 years and a jump of more than 6 percentage points in just one year.\n- Interest burden:\n  - Interest payments reached a worrying 20 percent of tax revenue for the region as a whole in 2020.\n  - Interest payments exceeded one-third of revenue in a number of cases, diverting resources from social and development needs."
    },
    {
      "heading": "Limited progress in raising tax revenues",
      "content": "- Tax revenue mobilization remains the main policy lever to bridge spending pressures and sustainable public debt, but progress has typically been slow.\n- Country-specific needs for mobilization:\n  - Streamlining exemptions for some countries.\n  - Increasing efficiency of existing tax systems for others.\n- Political and social constraints: raising taxes is politically difficult, especially given businesses and households have fewer resources post-crisis.\n- Temporary relief measures: in some countries, many relied on tax forbearance or delayed tax payments to get through the year."
    },
    {
      "heading": "Policy recommendations and measures to relax the trilemma",
      "content": "- Immediate international support priorities:\n  - Ensure swift and affordable access to vaccines.\n  - Provide resources through grants and concessional financing.\n  - Extend the G20 Debt Service Suspension Initiative.\n  - In some cases, provide debt treatment under the Common Framework.\n- Domestic policy priorities (bold and transformative reforms):\n  - Strengthen transparency and governance reforms to lift the efficiency of public spending and target resources to those who need it most.\n  - Improve tax administration, including through the use of new digital technologies, to broaden the tax base.\n  - Raise more revenue in ways that protect the vulnerable and support growth.\n  - Adopt medium-term fiscal frameworks to balance short-term supportive fiscal stance with medium-term consolidation to contain borrowing costs and sustain confidence, especially where debt is high and financing tight.\n  - Accelerate reforms to promote private sector activity and economic diversification to lift potential growth, resilience, and job creation.\n- IMF role: provide program engagement, emergency financing, technical assistance, and policy advice; stands ready to help.\n\nSource: The Policymaker’s Trilemma — Abebe Aemro Selassie, Andrew Tiffin, May 12, 2021.\n\n---\n\n\nSource: https://www.imf.org/en/blogs/articles/2021/05/12/blog-the-policymakers-trilemma"
    }
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    "Authors: Abebe Aemro Selassie, Andrew Tiffin",
    "Published: May 12, 2021",
    "Region: sub-Saharan Africa.",
    "Pandemic context: second wave eased earlier in the year, risk of further waves as winter approaches.",
    "Global backdrop: global recovery well underway; key economies rebounding sharply; global trade improved; commodity prices higher; investment flows resumed.",
    "Near-term outlook for sub-Saharan Africa: growth prospects described as somewhat more subdued while widespread vaccination remains out of reach.",
    "Immediate challenges facing finance ministers:",
    "Tradeoffs: addressing one element typically comes at the expense of one or both of the others (e.g., higher spending requires more debt or higher taxes; boosting tax revenue can support spending or help contain debt).",
    "Pre-existing development needs were already daunting in the context of rapid population growth.",
    "The crisis setback: the region’s development path has been set back by almost a decade.",
    "Labor market and poverty impacts in 2020:",
    "Distributional impact: a large proportion of the region’s most marginalized workers were concentrated in some of its hardest-hit sectors, adding to inequality.",
    "Demographic pressure: by 2030 nearly one in two new entrants into the global labor force will come from sub‑Saharan Africa.",
    "Public debt increased to almost 58 percent of GDP in 2020 — the highest level in almost 20 years and a jump of more than 6 percentage points in just one year.",
    "Interest burden:",
    "Tax revenue mobilization remains the main policy lever to bridge spending pressures and sustainable public debt, but progress has typically been slow.",
    "Country-specific needs for mobilization:",
    "Political and social constraints: raising taxes is politically difficult, especially given businesses and households have fewer resources post-crisis.",
    "Temporary relief measures: in some countries, many relied on tax forbearance or delayed tax payments to get through the year.",
    "Immediate international support priorities:",
    "Domestic policy priorities (bold and transformative reforms):",
    "IMF role: provide program engagement, emergency financing, technical assistance, and policy advice; stands ready to help."
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