Global Courant 2023-04-17 11:07:15
South Africa, as part of the Sub-Saharan region, is facing shrinking aid budgets and reduced inflows from partners, both internationally and across borders, leading to a “major financial tightness,” says the International Monetary Fund (IMF).
Abebe Aemro Selassie, the director of the IMF’s Africa division, said while announcing a new report analyzing the region’s current economic landscape, countries in the Sub-Saharan region have effectively been cut off from international markets as a result of high inflation and borrowing costs.
In her latest report, “Big Funding Squeeze,” Selassie said people in the region are feeling the effects of a funding crisis.
“Since the Russian invasion of Ukraine, the cost of living has become more expensive, borrowing costs have risen and access to cheaper finance has declined,” he said.
“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 director said that if no action is taken, this financial tightness will hamper Sub-Saharan efforts to build a skilled and educated population and to be the driving force of the global economy in years to come.
Across the board, government debt and inflation are at their highest in decades, eroding household purchasing power and leaving cash-strapped consumers.
In addition, the report outlined that the rapid tightening of global monetary policy has increased borrowing costs for Sub-Saharan Africa.
However, Selassie noted that South Africa has been able to cope with the headwinds of a funding gap.
He said this is due to the country having deeper liquid financial markets and a government that relies almost entirely on the market to fund itself.
“In the past, during the global financial crisis, for example in 2008/09, the country was subject to a very large funding squeeze, but it managed by moving the exchange rate and relying on domestic markets.”
“I think this is an important source of funding that I think will see through both government and private markets, which can also rely on this — private companies that can rely on this market,” the director said.
Economic growth
During a Q&A session with journalists from various publications, when asked about the current situation South Africa is in, Selassie said that in terms of growth forecasts, challenges related to the country’s electricity production continue to affect growth.
“I think that’s by far the most important influence on the projections we have. Of course, the difficult external environment also plays a role,” he said.
The IMF has revised the country’s annual growth forecast to about 0.1%. Selassie said the country would probably get through with a small expansion; however, others have expressed a significant lack of confidence in this happening.
Looking broadly at sub-Saharan Africa, the organization expects growth in the region to slow to 3.6% – its second year of decline.
Read: Major red flags for investment in South Africa
