November 21, 2023/FBNQuest Research
In its recently released Sub-Saharan Africa (SSA) regional economic outlook, the IMF lowered the region’s growth forecast from 4.0% in 2022 to 3.3% in 2023. The Fund cited the increasing inflation in the region due to Russia’s conflict with Ukraine, which has resulted in higher global interest rates, currency depreciation, and tighter financial conditions for Sub-Saharan market economies. However, the Fund improved its 2024 growth forecast for the region to 4.0%.
Although it noted that inflation is slowing down in most SSA countries, it pointed out that headline inflation remained significantly above SSA central banks’ target in many countries.
According to the Fund, headline inflation in 2023 is projected to remain in double digits in 14 countries, including some of the region’s larger economies, such as Ethiopia, Ghana, and Nigeria.
In response to rising inflationary trends, the Fund recommends that central banks in the region should continue tightening rates until inflation expectations are well-anchored.
Additionally, the Fund pointed out the increased debt vulnerabilities in the region due to high borrowing rates, resulting in debt distress in most low-income countries.
According to the Fund, the risk of regional conflict has significantly increased, primarily due to increased geo-political tensions, weak institutions, and a higher cost-of-living crisis.
Specifically, the military takeover in Niger has heightened the possibility of a regional military conflict in the Sahel region.
Returning to the 2024 growth outlook, the Fund is less optimistic about the rebound in projected growth in 2024 because of a slowdown in governments’ reforms towards macro-economic stability and growth, a rise in political instability, and a slow recovery of China’s economy which may hinder the region’s growth.
However, the Fund recommends that policymakers focus on four related priorities: addressing high inflation, allowing for greater exchange rate flexibility, managing high debt obligations, and enhancing the prospects for broad-based growth.
Furthermore, it pointed out downside risks to regional growth, including slow recovery of China’s economy, further tightening of global financial markets, which could hinder borrowing by SSA economies in international markets, and rising geo-political tensions, which could disrupt global commodity trade and result in increased price volatility.
Turning to the region’s fiscal policy, it called on the government to rely more on domestic resources. This can be achieved by expanding the tax base and improving the tax administration.
Finally, the Fund suggests that SSA countries work towards achieving effective debt management to help strike the balance between funding the government’s needs and ensuring a sustainable debt balance.
