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Ph;DR; • Sub-Saharan Africa (SSA) is facing a major funding shortage linked to the drying up of development aid and increasingly restricted access to private funding; in this context, economic growth in the region should drop to 3.6%. This is the second consecutive year of overall decline in growth in the SSA.
In a context of global economic slowdown, growth in Sub-Saharan Africa (SSA) should go down to 3.6 percent before rebounding to 4.2 percent in 2024, as global activity recovers, inflation declines and monetary policy gradually eases, according to the IMF’s latest Regional Economic Outlook for sub-Saharan Africa, published this April 14, 2023 in Washington. For the second consecutive year, sub-Saharan Africa recorded a lower growth rate than the previous year.
Sub-Saharan Africa (SSA) is facing a major financing shortage linked to the drying up of development aid and increasingly restricted access to private financing; in this context, economic growth in the region should drop to 3.6%. This is the second consecutive year of overall decline in growth in the SSA.
If left unaddressed, this funding shortfall risks forcing countries to cut budgetary resources for critical areas of development such as health, education and infrastructure, preventing the region from taking full advantage of its opportunities. .
The IMF is playing its part in remedying this situation. Between 2020 and 2022, the IMF has provided the region with more than $50 billion in financing, more than double the amount disbursed over a 10-year period since the 1990s. The number of countries with which the IMF has entered into loan agreements was 21 as of March 2023, and more applications are under consideration.
Sub-Saharan Africa is far from without recourse. Four measures can help overcome the current difficulties: (i) strengthening public financial management and rebalancing budgets, (ii) curbing inflation, (iii) allowing exchange rates to adjust, while mitigating the negative effects on the economy, and iv) ensuring that the essential fight against climate change is not carried out at the expense of financing basic needs such as health and education.
“Growth in the region varies from country to country. Some countries, especially those in the East African Community and non-oil resource-rich countries, are expected to fare better than others, but some of SSA’s most economically important countries are dragging the region’s average growth rate down: this is the case of South Africa, where growth is expected to slow sharply to just 0.1% in 2023,” said Abebe Aemro Selassie. , Director of the African Department of the IMF.
Public debt and inflation are at levels not seen for decades; half of the countries in the region are plagued by inflation above 10%, which reduces the purchasing power of households and hits the most vulnerable sections of the population hard.
The rapid tightening of monetary policy at the global level has increased borrowing costs for SSA countries in both domestic and international markets. All the pre-emerging countries of sub-Saharan Africa have been deprived of access to financial markets since the spring of 2022. Last year, the effective exchange rate of the dollar posted a level not reached in 20 years, which had for effect of making it more expensive to repay debts denominated in that currency. Over the past decade, the ratio of interest payments to government revenue has doubled in the average SSA country.
This development, combined with the reduction in development aid budgets and inflows of capital from partners in the region, has led to a major shortage of financing in the region.
«People in sub-Saharan Africa are feeling the effects of the funding crisis. Since Russia’s invasion of Ukraine, the cost of living has risen, borrowing has become more expensive and access to affordable finance has been restricted.”Mr. Selassie said.
“Together with the long-standing decline in development aid and the recent reduction in investments made by partners in the region, these factors lead to the reduction of resources devoted to basic services such as health, education and infrastructure. Without appropriate measures, this shortage of funding will hamper the initiatives deployed by the leaders of the region to foster the emergence of an educated and qualified population and to become the driving force of the world economy in the years to come, ” he added.
The IMF plays its role and stands by its member countries. Between 2020 and 2022, we have made more than $50 billion available to the region, in the form of programs, emergency financing and the allocation of special drawing rights. In just two years, the IMF has provided more than double the amount disbursed over a 10-year period since the 1990s. The number of countries with which we have signed loan agreements was 21 last month, and other requests are under consideration.
Sub-Saharan Africa is far from without recourse. Mr. Selassie indicated four priority avenues to remedy the macroeconomic imbalances plaguing the region:
“First, it is important to strengthen public financial management and rebalance budgets, against a backdrop of tighter financial conditions. To do this, the authorities will have to continue to increase public revenue, improve the management of budgetary risks and show more determination in debt management. Some countries require debt restructuring or rescheduling; in this regard, it is essential to be able to have an effective framework for dealing with the debt, so that these countries can create for themselves the budgetary space which they lack.
“Secondly, it is necessary to curb inflation. Monetary authorities will have to be cautious until inflation takes a clear downward path and gets closer to the range targeted by central banks.
“Third, exchange rates should be allowed to adjust, while mitigating the adverse economic effects of depreciations, such as accelerating inflation and rising indebtedness.
“Finally, fourthly, we must ensure that the necessary measures to finance climate action are not taken at the expense of basic needs such as health and education. Funding for climate action from the international community must be additional to current aid amounts. »
