International Monetary Fund working paper finds fiscal consolidations in sub-Saharan Africa cut output by about 0.54 percent after two years

The International Monetary Fund published a working paper estimating the macroeconomic effects of fiscal consolidations in sub-Saharan Africa using a newly constructed narrative dataset of discretionary fiscal policy actions. Using this identification approach, the paper finds that a fiscal consolidation equal to 1 percent of GDP reduces output by about 0.54 percent after two years, implying larger output costs than estimates produced by alternative methods. The dataset covers 14 sub-Saharan African countries over 1990–2024 and focuses on fiscal measures taken for reasons unrelated to current or prospective economic conditions. Beyond output, the analysis finds consolidations reduce imports, improve the current account balance, and lead to a depreciation of the real effective exchange rate. Composition and state dependence matter: spending cuts have larger multipliers than tax increases, and output losses are larger when consolidations are implemented during downturns and when development aid inflows are low; the results are reported as robust to several checks, including alternative estimation strategies. The IMF notes the paper is research in progress, published to elicit comments and encourage debate, and does not necessarily reflect the views of the IMF, its Executive Board, or management.