IMF: Sub-Saharan Africa’s economic growth faces challenges
Sub-Saharan Africa’s economic growth is expected to decelerate to 3.6% amid the global economic slowdown before rebounding to 4.2% in 2024, according to the latest report by the International Monetary Fund (IMF) for the region. This marks the second consecutive year that the region has experienced lower growth than the previous year.
While some countries, particularly those in the East African Community, are expected to fare better, major economies such as South Africa are projected to experience sharp deceleration in growth to only 0.1% in 2023. The IMF’s African Department Director, Abebe Aemro Selassie, highlights that growth across the region varies from country to country.
However, sub-Saharan Africa is facing significant challenges that could dampen its economic outlook. High levels of public debt and inflation are eroding household purchasing power, hitting the most vulnerable communities the hardest. Double-digit inflation is present in half of the countries, with the region experiencing levels of public debt and inflation not seen in decades.
Moreover, the rapid tightening of global monetary policy has increased borrowing costs for sub-Saharan African countries both domestically and internationally. All sub-Saharan African frontier markets have been cut off from market access since spring 2022, and the US dollar effective exchange rate reached a 20-year high last year, increasing the burden of dollar-denominated debt service payments.
Interest payments as a share of revenue have doubled for the average sub-Saharan African country over the past decade. This has led to a funding squeeze for the region, with shrinking aid budgets and reduced inflows from partners. Mr. Selassie warns that people in sub-Saharan Africa are feeling the effects of a funding crisis, which could hamper the region’s efforts to build a skilled and educated population and be the driving force of the global economy in years to come.
To address macroeconomic imbalances, Mr. Selassie suggests four priorities for sub-Saharan Africa. Firstly, consolidating public finances and strengthening public financial management amid difficult funding conditions will rely on continued revenue mobilization, better management of fiscal risks, and more proactive debt management. For countries requiring debt reprofiling or restructuring, a well-functioning debt-resolution framework is vital to creating fiscal space.
Secondly, containing inflation is crucial, and monetary policy should be steered cautiously until inflation is firmly on a downward trajectory and projected to return to the central bank’s target range. Thirdly, allowing the exchange rate to adjust, while mitigating the adverse effects on the economy, including the rise in inflation and debt due to currency depreciations, is essential.
Finally, ensuring that important efforts to tackle climate change do not crowd out basic needs like health and education is crucial. Climate finance provided by the international community must come on top of current aid flows. The IMF is ready to support its members and has provided more than $50 billion between 2020 and 2022 through programs, emergency financing, and Special Drawing Rights allocation, with lending arrangements with 21 countries and more program requests under consideration.
Overall, sub-Saharan Africa’s economic growth prospects face significant challenges in the short term, but Mr. Selassie’s proposed priorities could help address macroeconomic imbalances and support the region’s longer-term economic outlook.
