Cape Town — Growth for Sub-Saharan Africa is expected to decelerate in 2023, for the second time in a row. According to the International Monetary Fund (IMF), this is partly due to a slowing global economy, reduced exports due to inflation and the Russia/Ukraine war.
Catherine Pattillo, senior economist at the IMF's Africa department, speaking with Esther Rose from AllAfrica, said the organization is concerned that the growth "funding squeeze" would force countries to cut down on other critical areas, such as health and education and vital infrastructure developments, that may see the region's growth potential weakening.
Causes of Downward Trajectory for Growth
The Russia/Ukraine war contributed to the rise in inflation worldwide and a rise in interest rates, which resulted in the tightening of the global monetary policy. This led to higher borrowing costs for Sub-Saharan Africa, which makes up 46 of the continent's 55 countries.
"So what we're concerned about is that the region continues to face multiple shocks, the shocks, obviously, from the Covid-19 pandemic. And then from the spill-overs from the war in Ukraine, the high cost of food and fuel prices, that has led to really cost of living crisis in the in the region. And what we see this year in 2023, is that growth in Sub-Saharan Africa is expected to slow to 3.6%," Pattillo said.
Pattillo said the IMF notes that the Covid-19 pandemic and the Russia, Ukraine war led to macroeconomic imbalances for most African countries and are at high inflation levels that have not been seen in decades.
She added that "double-digit inflation figures ... in half the countries in Africa and is impacting on households and leading to social tensions". These tensions were clear in Kenya, where citizens took to the streets in protest against high food and fuel costs.
The greater use of international and domestic financial markets - where non-concessional financing is more expensive - raised and doubled interest payments as a share of revenue, for the average Sub-Saharan country over the past 10 years. The IMF report said the decline in aid budgets and a fall in inflows from China has added to the constraints countries have in meeting its development needs.
Fallout From Political Conflicts
Many Sub-Saharan nations saw a rise in political conflict, wars and coups. This in turn led to a refugee crisis, as people flee their homes to escape the violence and attacks by militia groups such as Al-Shabaab in Somalia and Boko Haram in Nigeria.
Coups d'état in Mali and Burkina Faso led to growing instability, which caused many to flee across borders. The war between Ethiopia and Tigray region that began in November 2020 led to people fleeing to Sudan to avoid the conflict.
Refugee camps were established to house displaced people. Kenya's Dadaab camp, the largest in Africa, houses about a half million refugees, mainly from Somalia. It faced an even more precarious future, largely due to the slowing of food aid from international organizations and a threat of closure. A court ruling overturned the Kenya government's decision and the U.S. promised more aid. Medecins Sans Frontiers (MSF) reported a spike in child malnutrition at the camp, as well as overcrowding, particularly at Dagahaley, and a rise in cholera cases.
"In the Sahel region, there been a couple of countries that have faced coups d'état in the past year - countries like Burkina Faso and Mali. Some of the causes and drivers of this political upheaval are obviously deeply political, complex, long standing issues that drive fragility in countries. The most concerning aspect, that is what it does to people who can't live their lives, Pattillo said.
"It also has impacts obviously, on economic activity and public finance and all of that. So for the fund, we find pragmatic ways of working with those kinds of countries. Often they have agreed processes for transitions back to constitutional order over a certain period. And what the fund does then is, we continue to cooperate with the international community. Which relates obviously, to the regional groups, for the Sahel, such as ECOWAS," Pattillo said.
The Sahel region stretches from Senegal in the west through parts of Mauritania, Mali, Burkina Faso, Niger, Nigeria, Chad, and Sudan to Eritrea on the Red Sea. According to The Conversation Africa, the region is now described as the new global epicentre of violent extremism. The population is suffering immensely, and in some areas, more than two million people were displaced, and agriculture and development have come to a halt.
Keeping an Eye on the Purse Strings
Pattillo said that the IMF is doing its "utmost" to work with countries to make sure that that funding is used in the best way possible, so that it benefits the citizens.
"Countries come to the IMF for financing in a time of difficulty, not when they have other sources. There is a lot that goes on in countries that, as outsiders, we cannot know, in every detail. The most important thing ... is we're trying to help countries, build those institutions, so that they can be the ones to make sure that the money is well spent, and that governments are held accountable.
Pattillo said the IMF helps countries with reforms and how to finance their balance of payments, external funding, how much they need in terms of government financing, and working with all development partners.
"We look at the outflows, and see what the gap is and what ... we can help them finance, and what other development partners will help finance. If they're committing to really, really ambitious reforms, this would justify more financing. We look to ensure that debt is sustainable, because you don't want to be financing a country and putting it into more debt problems. And, of course, we look at the capacity to repay - for the fund to be able to continue lending to countries, we have to get paid back. And then maybe one other technical point in the fund system (allocation) ... you wouldn't give the same amount, obviously, to a very small country with a small GDP and a little bit of trade compared to a country of a much larger economy."
Kenya has been struggling with its public debt, a heavy burden on long-suffering citizens, who were opposed to further government loans from the IMF to fund the Covid-19 pandemic vaccination programme. In his last address as Kenya's president, Uhuru Kenyatta urged the new administration to use debt - emphasising its importance - as a key accelerator of economic development. Debt servicing in 2022 was at 65% of the total national budget. The national treasury proposed an increase in the debt ceiling from the current U.S.$77 billion to U.S.$86 billion, to enable the government to borrow more to finance the U.S.$28 billion budget for the 2022/23 financial year. A huge chunk has gone to infrastructure projects - key of which is the Standard Gauge Railway. It has also been reported that Kenya's economy is closely linked with China and it would be impacted if the Asian nation's fortunes turn.
Climate Crisis
Another area of concern to the IMF is that of the climate emergency and climate financing in Sub Saharan Africa. Many countries experienced extreme flooding, landslides, drought and food insecurity as a result of extreme weather patterns, and epidemics like cholera. Among the countries impacted by extreme weather in the past two years are parts of South Africa, South Sudan, Nigeria and DR Congo.
Pattillo said that the climate fund is intended to support low income and vulnerable middle income countries in addressing longer term challenges, including the climate crisis. "It is the first time that we have been able to offer longer term and affordable financing to countries that have existing IMF supported programmes, and who are developing climate change policy reform agenda. In the initial stage of the fund, the IMF worked with countries that had expressed early interest. We then approved five programmes within five months of the fund becoming operational."
While many East African nations spoke of the difficulty in accessing funding from the IMF's Resilience and Sustainability Facility (RSF) , Rwanda stands out for its progress made.
"Rwanda (is) the first African country, the first low income country, ... very active then in its climate agenda, which developed a number of policies to take that further. So, in terms of other countries, demand for these RSF programmes is growing, and there are lots of countries - including countries in Africa - who have expressed interest, and we're committed to work with all of the membership. And each country then has a different set of climate challenges ... there's a need to complete some diagnostics to identify the reform priorities."
Food Inflation, Fuel Costs
Growing food insecurity plagues Africa. In the first six months of 2022, food prices escalated by between 8% and 44%, causing panic amongst citizens and raising concerns in countries heavily dependent on imported products - particularly island economies such as the Seychelles, Mauritius and Madagascar. Countries such as Kenya and Nigeria protested against rising food and fuel costs.
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Pattillo advised that countries that are rich in commodities such as oil, should ideally build in a buffer of between 5% and 10% during their growth period to mitigate lean times. Nigeria, Africa's leading economy and the continent's largest oil producer, has seen a downturn in their economic growth as the demand for oil around the world decreased during the Covid-19 pandemic. Nigeria has been looking at ways to diversify its economy for a number of years. This has become more urgent in the wake of the pandemic - and with encouragement from the EU - is looking at growing the agriculture sector for export opportunities.
With the region in such a precarious financial position, the IMF came up with a plan for Sub-Saharan Africa to bounce back.
IMF Advice on Sub-Saharan Africa's Economic Squeeze
1. Consolidate public finances and strengthen public financial management.
This would rely on continued revenue mobilization, better management of fiscal risks and more proactive debt management. International assistance is also critical to alleviating governments' financing constraints. For countries that require debt re-profiling or restructuring, a well-functioning debt-resolution framework is vital to creating fiscal space.
2. Contain inflation by calibrating the pace of monetary policy tightening - by the level and the trajectory of inflation.
Monetary policy needs to be steered cautiously until inflation is on a downward trajectory and on track to reach the central bank's target range.
3. Allow for exchange rates to adjust while mitigating the adverse effects of depreciation, including higher inflationary pressure and increased debt payments, on the economy.
4. Ensure that climate financing does not crowd out other developmental needs like health and education.
Climate finance provided by the international community must come on top of current aid flows.
