Public debt and inflation across the African continent are at levels not seen in decades, with double-digit inflation present in half of countries, eroding household purchasing power and striking at the most vulnerable, the latest IMF regional economic outlook for Sub-Saharan Africa (SSA) says.
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According to the outlook, there has been a rapid tightening of global monetary policy which has raised borrowing costs for SSA countries both on domestic and international markets with all Sub-Saharan African frontier markets having been cut off from market access since spring 2022.
“The US Dollar effective exchange rate reached a 20-year high last year, increasing the burden of dollar-denominated debt service payments. Interest payments as a share of revenue have doubled for the average SSA country over the past decade.”
As a result of shrinking aid budgets and reduced inflows from partners, this is leading to a big funding squeeze for the region.
“People in Sub-Saharan Africa are feeling the effects of a funding crisis. Since Russia’s invasion of Ukraine, cost of living is more expensive, borrowing costs have increased and access to cheaper funding is dwindling,” said Mr. Selassie.
This comes as Kenyan President, William Ruto, said African governments have already been forced to cut back funding towards sectors like education and health. Ruto called on reforms to the international financial system which he blames for charging African countries and the global south 100 times more for development finance.
The IMF, which says it has provided over $50 billion to African countries between 2021 and 2022, is calling for more prudent financial management by African governments to navigate the current turmoil:
- Consolidate public finances and strengthen public financial management amid difficult funding conditions
- Containing inflation – Monetary policy should be steered cautiously until inflation is firmly on a downward trajectory and projected to return to the central bank’s target range
- Allowing the exchange rate to adjust while mitigating the adverse effects on the economy, including the rise in inflation and debt due to currency depreciations
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The funding squeeze affecting the continent is expected to slow growth to an average of 3.6% in 2023, the second consecutive year of an aggregate decline in SSA growth.
According to the IMF, growth is however expected to rebound to 4.2 percent in 2024 in line with a global recovery, subsiding inflation, and a winding down in monetary policy tightening.
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