IMF: SS Africa’s Economic Growth to Slow to 3.6% as ‘big funding squeeze’ Hits the Region

ADDIS ABABA – Growth in sub-Saharan Africa (SSA) is expected to slow to 3.6 percent as a “big funding squeeze”, tied to the drying up of aid and access to private finance, hits the region, the International Monetary Fund (IMF) says in its regional economic outlook published today.

The growth is projected to decelerate before rebounding to 4.2% in 2024 in line with global recovery, subsiding inflation, and a winding down in monetary policy tightening.

This will be the second consecutive year that SSA records a lower rate of growth than the previous year.

Growth across the region varies from country to country with some, particularly those in the East African Community, or non-oil resource-intensive countries projected 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.

“Public debt and inflation are at levels not seen in decades, with double-digit inflation present in half of the countries – eroding household purchasing power and striking at the most vulnerable.”

According to the economic outlook, the rapid tightening of global monetary policy has raised borrowing costs for sub-Saharan African countries both on domestic and international markets.

The US Federal Reserve’s move to aggressively hike rates took the dollar-effective exchange rate to a 20-year high last year. This has increased the burden of dollar-denominated debt service payments, the IMF says. Interest payments as a share of revenue have doubled for the average sub-Saharan African country over the past decade.

With shrinking aid budgets and reduced inflows from partners, this is leading to a big funding squeeze for the region, according to IMF’s regional economic outlook.

If no measures are taken, the IMF says, this 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.

The IMF says it’s playing its part and stands ready to support its members, claiming the Fund provided more than 50 billion dollars through programs, emergency financing, and Special Drawing Rights allocation between 2020 and 2022.

And as of last month, the global lender says it had lending arrangements with 21 countries, with more program requests under consideration.

Its officials also say Sub-Saharan Africa is far from powerless, pointing to four policies that they say can help navigate the current turmoil.

The Director of the IMF’s African Department said, “First, it is important to consolidate public finances and strengthen public financial management amid difficult funding conditions.

“Second, containing inflation. 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.

“Third, 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.

“And finally, ensuring that important efforts to tackle climate change do not crowd out basic needs, like health and education. Climate finance provided by the international community must come on top of current aid flows,” he added.