- Growth in sub-Saharan Africa is expected to slow to 3.6 percent in 2023, as a “big funding squeeze” tied to the drying up of aid and access to private finance hits the region.
- If no measures are taken, the funding shortage may force countries to reduce fiscal resources for critical development areas of health, education, and infrastructure, the IMF warned.
- Persistent global inflation and tighter monetary policies have led to higher borrowing costs for sub-Saharan African countries, placing huge pressure on exchange rates.
Economic growth in sub-Saharan Africa is projected to slow to 3.6 percent in 2023, as a “big funding squeeze”, tied to the drying up of aid and access to private capital sweeps across the region, the International Monetary Fund (IMF) has said.
The Regional Economic Outlook for Sub Saharan Africa April 2023 report indicates that if no measures are taken, to tackle this shortage of funding, a number of countries will be forced to lower budgetary allocations for their critical development in sectors such as health, education, and infrastructure, in turn holding the region back from realizing its true potential.
“I wish I was bearing better news, but unfortunately, we’re expecting growth to decelerate from 3.9 percent to 3.6 percent in 2023. And this to a large extent reflects the big funding squeeze countries are facing at the moment.” said Abebe Aemro Selassie, Director of the IMF’s African Department.
According to the report, the ongoing double whammy of high rate of inflation across the world and tighter monetary policies have led to higher borrowing costs for Sub-Saharan African countries, piling huge pressure on local currencies that have lost ground to major world units.
“Indeed, no country has been able to issue a Eurobond since spring 2022. The interest burden on public debt is rising, owing to a greater reliance on expensive market-based funding combined with a long-term decline in aid budgets. The lack of financing affects a region that is already struggling with elevated macroeconomic imbalances,” the report reads.
The region’s public debt and inflation are at levels not experienced in decades, with double-digit inflation present in about half of the countries—a move that is eroding the purchasing power of the citizens especially the most vulnerable.
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Sub-Saharan African countries lag significantly in revenue collections, with a median tax ratio of only 13 percent of GDP in 2022, compared with 18 percent in other emerging economies and developing countries and 27 percent in advanced economies.
“So, there are a number of reforms that need to be pursued. I think first and foremost, of course, is policies to strengthen the resilience of economies. So, many countries, for example, there’s a big challenge on mobilizing more domestic revenues. That needs to be addressed wherever that’s the main challenge. Second, I think it’s also important to consider policies to insulate domestic economies from external environment. So, allowing exchange rates to adjust, interest rates to be recalibrated, to reflect better to reduce inflation are all going to be very important part of the policy response to this adverse external environment,” added Selassie.
The IMF has provided the region with around $50 billion dollar in financing since the start of the pandemic and will continue to work with the region to put in place the right type of policies that are tailor-made to each country’s needs.
“We are engaging like never before with the region. Of course, over the last couple of years, we’ve provided considerable financing to the tune of around $50 billion to support the region. Whether the very difficult economic environment that was facing and we continue to try and provide as much financing as possible to support countries in the coming months. As important, however, of course, are policies and reforms that needs to be pursued by countries, and we are deeply engaged with working with countries to navigate and to put in place the right types of policies in each individual country,” said Selassie.
