Nigeria, 35 Other African Countries Facing Tight Fiscal Space, McKinsey Warns

Sunday Ehigiator

Nigeria and 35 other African countries are facing tightening fiscal constraints that could limit their ability to fund development and respond to economic shocks, according to a report by McKinsey.

The global consulting firm, which gave the warning in the report titled ‘From borrowing to building: A new fiscal path for Africa,’ which was obtained yesterday, noted that while a small group of African economies enjoys greater fiscal resilience and diversified financing options, populous nations like Nigeria remain vulnerable due to weak revenue bases and restricted market access.

Co-author and partner in McKinsey’s Johannesburg office, Matthews Mmopi, stated:  “Africa is not a single fiscal story. The distribution of both vulnerability and opportunity across the continent is skewed. Thirty-six countries, including Nigeria, Tanzania, Niger, and Angola, which are home to nearly three-quarters of Africa’s population but generate less than half of its GDP, face constrained fiscal space, low domestic revenue, and limited market access.

“In contrast, sixteen countries, including Egypt, Morocco, and South Africa, which together account for more than half of the continent’s GDP but less than a third of its population, exhibit greater fiscal resilience and diversified financing options.

“Aid flows mirror this divide: three-quarters of all ODA is concentrated in the first group of countries, underscoring the scale of dependence in countries least equipped to absorb external shocks.”

It stressed that Africa was at a crossroads and already experiencing a fiscal crunch, adding that the continent now stands to lose another $30 billion annually as a result of sharp cuts to official development assistance (ODA).

The report co-author and senior partner in McKinsey’s Johannesburg office Acha Leke also noted that, “While it’s been known for some time that Africa is in need of more resilient financial systems, recent cuts to ODA highlight the fragility of our current models. A proactive agenda based on evidence-based consensus and executed synergistically by relevant stakeholders could ensure that African countries pivot from aid transactions to build durable, market-ready public finance systems that fund sustainable and inclusive development and improve lives and livelihoods across the continent.”

According to the research, 42 of Africa’s 54 countries rely on ODA for 10 percent of their government budgets. Furthermore, as the report finds, 41 percent of all ODA that comes into the continent is deployed in healthcare and emergency services, leaving question marks around the functionality of these critical services as ODA declines.

For his part, co-author and senior partner in McKinsey’s London office, Tania Holt said: “These cuts come on top of a broader fiscal crunch. In 2023, African governments generated approximately $572 billion in revenue and recorded $785 billion in expenditure, leaving a fiscal gap of roughly $200 billion. Public external debt has climbed to roughly $746 billion—about 25 percent of the continent’s gross national income—and interest payments now consume nearly one-sixth of government revenues, the highest burden among developing regions.”

The report stressed that, while it would not be easy, the cuts can catalyse course correction.

African countries have an opportunity not only to fill the budget shortfall left by declining ODA, but also to pursue reforms that narrow deficits and build long-term resilience.

Four mutually reinforcing strategic levers are identified in the report as having the potential to generate more than $200 billion over the next 10 years and put public finances on a more sustainable footing: domestic resource mobilisation, cost optimisation, strategic system evolution, and economic growth.

Co-author and senior partner in McKinsey’s Chicago office, Adam Sabow, also noted, “The average tax-to-GDP ratio of African countries is below the World Bank’s 15 percent minimum growth threshold.  Each one percent increase in collection of existing taxes would generate $30 billion annually — covering ODA cuts — and total $150 billion by 2030.”

It noted that further savings could be made in efficiency, saying Africa stands at the forefront of a $75 billion opportunity in addressing leakages and irregularities in financial management, overspending on capital projects, and renegotiating debt.

“Ideally, the continent would generate additional resources through productivity improvement. But as it stands, many countries are hindered by narrow productive capacity and shallow access to capital,” Sabow added.

To help decision-makers sequence reforms appropriate to each country’s starting point, the report introduces four archetypes — Stabilise, Build, Accelerate, and Anchor — that reflect the structural realities of different African countries.

“Across all four pathways, however, the logic is shared,” says Matthews. “Stability buys time, delivery builds credibility, and depth secures resilience. Skipping steps risks eroding fragile gains and investor trust, so it’s critical that we take these frameworks to heart and act together to bridge the gaps.”

Bringing these parts together requires collective action. The report highlighted five key stakeholders who have an essential role to play in the road toward resilience: national institutions, DFIs, private sector, South-South partners, and regional blocs.

Many of these players are already acting—but there is an opportunity to accelerate using existing institutions and shared ambition, it noted, adding that by aligning this fiscal reform with talent investment, job creation, and enhanced infrastructure, the continent can shift from reliance on ODA to sustainable, inclusive finance systems.