…Disbursement to region hits $50bn in 2 years
From Uche Usim, Washington DC
The International Monetary Fund (IMF), on Friday, predicted that growth in Sub-Saharan Africa in 2023 is expected to slow to 3.6 percent, as the region is shackled by a big funding squeeze, tied to the drying up of aid and access to private finance, hits the region.
It, however, anticipated a rebound in growth to 4.2 percent in 2024.
The predictions were contained in the Sub-Saharan Africa (SSA) regional economic outlook released on Friday by the Director, African Department of the IMF, Abebe Aemro Selassie, in Washington DC, on the sidelines of the 2023 Spring Meetings organised by the IMF and World Bank.
According to him, this is the second consecutive year of an aggregate decline in SSA growth.
He further warned that if no measures were taken, the shortage of funding may force countries to reduce fiscal resources for critical development like health, education, and infrastructure, holding the region back from developing its true potential.
Selassie said the IMF was already playing its part in supporting SSA countries, as it provided more than $50 billion dollars to the region between 2020 and 2022; which is more than twice the amount disbursed in any 10-year period since the 1990s.
Selassie added that public debt and inflation are at levels not seen in decades, with double-digit inflation present in half of countries, thus eroding household purchasing power and striking at the most vulnerable.
He noted that the rapid tightening of global monetary policy has raised borrowing costs for SSA countries both on domestic and international markets.
“All Sub-Saharan African frontier markets have been cut off from market access since spring 2022. 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 SSA country over the past decade.
“As of March 2023, the IMF had lending arrangements with 21 countries, with more requests under consideration.
“Sub-Saharan Africa is far from powerless. Four policies can help navigate the current turmoil: i) consolidating public finances and strengthening public financial management, ii) containing inflation, iii) allowing exchange rates to adjust, while mitigating the adverse effects on the economy, and iv) ensuring important efforts to tackle climate change do not crowd out financing for basic needs like health and education.
“Growth across the region varies from country to country. Some countries, particularly 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,” said Abebe Aemro Selassie, Director of the IMF’s African Department”, he explained.
He stated that shrinking aid budgets and reduced inflows from partners has led to a big funding squeeze for the region.
“People in Sub-Saharan Africa are feeling the effects of a funding crisis. Since Russia’s invasion of Ukraine, cost of living is more expensive, borrowing costs have increased and access to cheaper funding is dwindling,” said Mr. Selassie.
“Coupled with a long-term decline in aid and a more recent fall in investment from partners, this means that there is less money to be spent on vital services like health, education, and infrastructure. If measures are not taken, this funding squeeze will hamper Sub-Saharan’s efforts to build a skilled and educated population and to be the driving force of the global economy in years to come,” he added.