With a worldwide recovery, the International Monetary Fund has reported that growth in sub-Saharan Africa is anticipated to drop to 3.6 percent before bouncing back to 4.2 percent in 2024.
They further stated that both domestic and international borrowing costs for SSA nations have increased due to the rapid tightening of global monetary policy.
Director of the IMF’s African Department, Abebe Aemro Selassie, made this disclosure following the publication of the IMF’s regional economic outlook for sub-Saharan Africa.
They stated that a “big funding squeeze” brought on by the reduction in aid and access to private financing will likely cause growth in sub-Saharan Africa to drop to 3.6 percent. The overall rate of SSA growth has fallen for the second year in a running.
According to them, growth in sub-Saharan Africa is predicted to drop to 3.6 percent amid a global slowdown before picking up to 4.2 percent in 2024 in line with global recovery, declining inflation, and a slowing of monetary policy tightening. They also noted that this will be the second year in a row that SSA has recorded a lower rate of growth than the previous year.
Abebe Aemro Selassie said, “Growth in the region differs from nation to nation. few nations, in particular, those in the East African Community, or non-oil resource-intensive countries, are expected to fare better but some major economies bring down the average SSA growth rate, like South Africa where growth is projected to decelerate sharply to only 0.1 percent in 2023.”
The IMF reported that household purchasing power is being eroded by double-digit inflation, which is present in half of the nations, and that debt and inflation are at levels that have not been seen in decades.
“Global monetary policy has tightened quickly, increasing the cost of borrowing for SSA nations on both local and foreign markets. Since the spring of 2022, no market access has been granted to any frontier markets in sub-Saharan Africa. Last year, the effective exchange rate for the US dollar reached a 20-year high, adding to the difficulty of making dollar-denominated debt service payments.
For the average SSA country over the previous ten years, interest payments as a percentage of revenue have doubled. This is creating a significant financing crunch for the organization due to decreasing aid allocations and decreased partner inflows.
“The repercussions of a funding crisis are being felt by people in sub-Saharan Africa. The cost of living has gone up since Russia invaded Ukraine, borrowing has become more expensive, and access to cheaper funding is dwindling.
The IMF head continued, “This means that there is less money to be spent on essential services like health, education, and infrastructure, coupled with a long-term decline in aid and a more recent fall in investment from partners,”
“The IMF is contributing and is prepared to help its members. Through programs, emergency funding, and the distribution of Special Drawing Rights, we contributed more than 50 billion dollars between 2020 and 2022.
“The IMF disbursed more money in just two years than it has in any ten-year period since the 1990s. And as of the previous month, we had lending agreements with 21 countries, with additional program requests being taken into account.
The IMF said, “First, in light of the challenging funding environment, it is crucial to consolidate public finances and strengthen public financial management. Continued revenue mobilization, improved risk management, and more aggressive debt management are all necessary for this. A strong debt-resolution system is essential for governments that need to reprofile or restructure their debt to free up fiscal headroom.
“Secondly, preventing inflation. Until inflation is predicted to be firmly on a downward track and return to the central bank’s target range, monetary policy should be guided cautiously.
“Thirdly, permitting the exchange rate to fluctuate while minimizing negative economic effects like an increase in inflation and debt brought on by currency depreciations.
“And lastly, making sure that significant initiatives to combat climate change are not replacing necessities, like health and education. The international community must supplement present aid flows with climate money.
This week, the World Bank Group predicted that in 2023, growth in emerging nations will decrease to 3.1%.
President of the World Bank, David Malpass, revealed this during the 2023 Spring Meetings Media Call.
Malpass attributed the expected fall to escalating energy costs and current banking pressures, which he claimed would stifle activity.
This follows the World Bank Group’s declaration that Nigeria’s economy will be driven by the non-oil sector in its Africa Pulse Report that oil production is predicted to remain modest in 2023 due to several issues.