IMF pessimistic for African economies

1. Pessimistic forecasts: growth should be weaker than expected and inflation higher

Papa N’Diaye, head of the regional studies division of the IMF’s African branch, begins with a ” significant decrease of the expected growth in Africa. Indeed, it has just been re-rated by the IMF from 4.5% to 3.8%. Moreover, ” inflation in the region is expected to remain high in 2022, at 12.2%, and then gradually decline to 9.6% in 2023

According to the report, this decline in projected growth endangers » the good results of the subcontinent in 2021, and wears a « halting positive growth momentum of the second half of 2021.

3.8% growth: The figure may seem significant, but according to Papa N’Diaye, who led this report, it is largely insufficient to make up for what was lost in previous years, and ” create all the jobs needed to accommodate the entry of young people into the labor market

The institution is particularly concerned about the consequences for the most vulnerable groups. They will be the ones who will suffer the most from the ” inflationary pressure In addition, after periods of improvement, concerns about food insecurity and rising poverty rates are mounting. These problems can also lead to an increase in social tensions, by increasing inequality.

However, the forecast for 2023 is more optimistic, with growth of 4%, although it is still too weak according to the IMF. Thereby, ” the gap between the region and advanced economies created by the COVID-19 crisis is likely to persist

The long-term trend of declining poverty in the region has reversed.
IMF Sub-Saharan Africa Economic Outlook Report

2. Health crisis, then war in Ukraine: a region put to the test

Indeed, it is the coronavirus pandemic, followed by the war in Ukraine, that explains this deterioration. The IMF calls the conflict a ” new shock for the region’s economy, raising the prices of raw materials, energy, food and agricultural production as it tries to recover from the health crisis.

Food prices had already risen before the war, but the situation has worsened since then. In particular, the report recalls that “ Sub-Saharan Africa imports about 85% of its wheat and some countries source much of their imports directly from Russia or Ukraine

(See back) : War in Ukraine: what consequences for Africa?

The pandemic has disrupted the labor market, with dire consequences for poverty. † The long-term trend of declining poverty in the region has reversed and an additional 39 million people will fall into extreme poverty in 2020 and 2021 “, the IMF regrets.

Tourism has also been particularly affected by the effects of the crisis: figures are still not back to pre-pandemic levels, weighing on the economic performance of many countries in the subcontinent. Some, like Cape Verde or Mauritius,” facing persistent revenue losses of up to 15% of GDP

Therefore, although only 12% of the population is fully vaccinated, the IMF is urging to speed up the vaccination campaign to counter these effects and avoid exposing the region to new variants. He points to positive initiatives, such as the local production of vaccines in Senegal or South Africa.

The weight of debt weighs heavily on public balance sheets at a time when human development or infrastructure needs are enormous.
Papa N’Diaye, Head of the Regional Studies Department of the African Branch of the IMF.

3. Why is Africa particularly affected?

All regions have suffered the consequences of these two crises. But sub-Saharan Africa is particularly vulnerable, mainly because of its reliance on food trade and widespread food insecurity. In addition, monetary tightening in other regions of the world, especially in the United States, Europe or China, has specific implications for the continent. In addition, high poverty, unemployment, climate shocks, deteriorating security situation through various conflicts, the economic impact of which is assessed.

(Re)see: War in Ukraine: how to deal with food risks?

In this regard, the report notes that the development of these conflicts “ weighs on public finances “, if ” disruption of trade routes, damaged infrastructure, displaced persons, weakened institutions, crippled tourism and a less favorable business environment In total, according to a 2019 assessment, active conflicts usually weigh on the growth of the countries directly affected by 2.5 growth points per year. Regional or international sanctions also worsen the economic outlook.

Moreover, debt accentuates this vulnerability. † 20 African countries are in debt or at high risk of debt. The weight of debt weighs heavily on public balance sheets at a time when human development or infrastructure needs are enormous. It has increased during the pandemic and is likely to increase further. The limited policy space had already limited the ability of governments to respond. Tax support was much lower than in other regions », Papa N’Diaye develops.

(See back : Economic Summit in Africa: what does the debt of African countries represent?

4. A heterogeneous region: some countries benefit from oil price increases

The report highlights the heterogeneity of the economies of the countries in the region, particularly separating the oil-importing countries from the exporting countries. The latter, such as Nigeria or Tanzania, could benefit from the consequences of the war in Ukraine through the rise in energy prices. This has prompted the IMF to reassess its forecasts for them, although their growth tends to be slower than that of commodity-poor countries.

For example, in the last quarter of 2021, the Angolan currency posted its strongest gain since 1999, supported by rising oil prices, improved creditworthiness and a significant tightening of monetary policy.

Demographic trends make it a region with huge potential. This can be both a source of growth within the region, but also an engine for the whole world.
Papa N’Diaye, Head of the Regional Studies Department of the African Branch of the IMF.

According to Papa N’Diaye, exporting countries should use this financial windfall to promote the diversification of their economies.

However, the benefit is limited by the quality of the infrastructures and the security or technological obstacles. In particular, most countries in the region (37 out of 45) are not concerned about this advantage.

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However, the economist qualifies these differences: all countries in the region, be they oil importers or exporters, will suffer from rising food prices

5. What does the IMF offer?

Given these concerns, what does the institution propose? According to her, the room for maneuver in the short term is very limited. Priority concerns aid to vulnerable groups in the light of price increases and balances to be maintained.

According to the IMF, this is ” contain inflation without jeopardizing the economic recovery », to help the population without increasing debt. He calls on financial instruments for this, such as targeted subsidies, raising the rates for central banks or managing the adjustment of exchange rates.

In the longer term, the IMF recognizes that international aid remains indispensable. Papa N’Diaye details: financing at favorable rates (i.e. whose interest is lower than the market rate), debt forgiveness, absence of export restrictions, etc.

(See back : Niger: focus on Zlec, the free trade zone in Africa

In addition, the report proposes to focus in the future on economic diversification, climate change adaptation or regional integration, especially through continental free trade zones.

It also suggests other avenues for reform at the national or regional level, aimed at liberalism: a greater efficiency » public spending, promotion of the private sector, acceleration of digitization, etc.

Papa N’Diaye recalls that responding to these challenges could dramatically change sub-Saharan Africa’s place in the global economy, according to the IMF. † Demographic trends make it a region with huge potential. All this can be both a source of growth within the region itself, but also an engine for the whole world.

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