Global Courant 2023-05-04 15:33:17
African countries are facing the worst financing problems in 20 years, warns the International Monetary Fund. It calls for internationally coordinated action, similar to that of the developed countries in the Group of Eight (G8) agreed at the 2005 Gleneagles Summit in Scotland.
The crisis stems from waves of shocks, including the Covid pandemic and rising food and other prices following the Russian invasion of Ukraine.
In April, the IMF released its regional economic outlook report for sub-Saharan Africa (SSA), titled The Big Funding Squeeze. This points to shrinking donor spending and reduced loan and investment inflows, both from the West and China, contributing to African governments’ difficulties in raising funds from international capital markets and declining exchange rates for local currencies.
The resulting inflation, including rising food prices, exceeds 10% in half of African countries and hits the poor hardest.
Abebe Aemro Selassie, the director of the IMF’s Africa division, says: “In terms of macroeconomic challenges, I think this is by far the most difficult period since the turn of the century.”
No country has managed to raise funds by selling US dollar-denominated government bonds since spring 2022. The dollar has reached a 20-year high, adding to the burden of paying off debt in dollars. On average, interest payments as a share of income have doubled in 10 years.
Chad, Ethiopia, Ghana and Zambia have applied for debt relief using the Common Framework mechanism proposed by the Group of 20 (G20) leading economies.
According to Selassie, “Since the Russian invasion of Ukraine, the cost of living has become more expensive, the cost of borrowing has risen and access to cheaper finance has declined.
“Combined with a long-term decline in aid and a more recent decline in partner investment, this means there is less money to spend on vital services such as health care, education and infrastructure.”
The Fund estimates that economic growth in SSA will be 3.6% in 2023, up from 3.9% in 2022, the second year of lower growth, although growth should recover to 4.2% per annum in 2024, when inflation will be lower and monetary policy relaxed again.
The fastest growing African economies are Senegal (growth forecast at 8.3% in 2023 and 10.6% in 2024), Ivory Coast (6.2% in 2023, 6.6% in 2024), Democratic Republic of the Congo (6. 3% and 6.5%) and Ethiopia (6.1% and 6.4%).
By comparison, South Africa’s growth is expected to slow to just 0.1% in 2023 and 1.8% in 2024. Oil exporter Nigeria will grow by 3.2% and 3.0% respectively. Equatorial Guinea’s economy is expected to contract by 1.8% in 2023 and 8.2% in 2024.
The question is whether developed countries, battling inflation and rising food and energy costs to their own devices, are inclined to make efforts, as at Gleneagles in 2005, to free Africa from some of its heaviest financial burdens, such as heavy debt service. . China often comes to the rescue as a lender of last resort, but with a looming economic confrontation with the US and still sluggish growth, will it once again put its hands in its pockets for Africa?
Related articles
