The International Monetary Fund (IMF) works to achieve sustainable growth and prosperity for all of its 190 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being. The IMF is governed by and accountable to its member countries.
The IMF has three critical missions: furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity. To fulfill these missions, IMF member countries work collaboratively with each other and with other international bodies.
Le Fonds monétaire international (FMI) s’efforce d’assurer une croissance et une prospérité durables à l’ensemble de ses 190 pays membres. Pour ce faire, il soutient les politiques économiques qui favorisent la stabilité financière et la coopération monétaire, essentielles pour accroître la productivité, la création d’emplois et le bien-être économique. Le FMI est gouverné par ses pays membres, auxquels il rend compte.
Le FMI a trois missions essentielles : promouvoir la coopération monétaire internationale, encourager l’expansion du commerce et la croissance économique, et décourager les politiques qui nuiraient à la prospérité. Pour remplir ces missions, les pays membres du FMI travaillent en collaboration les uns avec les autres et avec d’autres organismes internationaux.
Date of publication/ Date de publication : October 2022
Site of publication / Site de publication : https://www.imf.org/
Extracts from pages / Les extraits proviennent des pages : 1-4, 5, 6 , 7, 8, 9
Living on the Edge
Recent developments and outlook: another challenging year
Sub-Saharan Africa’s recovery has been sharply interrupted. Last year, activity in sub-Saharan Africa finally bounced back, bringing GDP growth in 2021 up to 4.7 percent. Unfortunately, growth is expected to slow this year by more than 1 percentage point to 3.6 percent, as a worldwide slowdown and a dramatic pickup in global inflation spill into a region already wearied by an ongoing series of shocks. Rising food and energy prices are striking at the region’s most vulnerable, and macroeconomic imbalances are approaching levels not seen in decades.
A Shifting and Tumultuous Global Environment
Three major global developments are reshaping sub-Saharan Africa’s outlook: the slowdown in advanced economies and emerging markets, tightening global financial conditions, and volatile commodity prices.
In the months since April, growth projections have been scaled back worldwide. Global growth in 2022 has been revised down by almost 1⁄2 percentage point, driven in large part by a drop for both advanced economies and China of about 1 percentage point.
With the rapid pickup in global inflation, monetary policy normalization in advanced economies has sped up. In this context, capital flows have remained precarious. For the first half of the year, outflows from sub-Saharan Africa rivaled those associated with the onset of the COVID-19 crisis or the 2015 commodity price shock, adding to pressure on exchange rates, with the largest depreciations observed in Ghana, Malawi, and Sierra Leone.
Global commodity prices have been particularly turbulent. Wheat, for example, almost doubled at the onset of the Russian invasion of Ukraine but has since returned to prewar levels. More broadly, sub-Saharan Africa’s terms of trade are still expected to improve in 2022, compared with last year, but some gains have been scaled back since April, and significant heterogeneity persists—oil exporters can expect an improvement of about 16 percent in their terms of trade this year, while non-resource-intensive countries face a drop of about 41⁄2 percent. For commodity exporters and importers alike, however, external prices are now increasingly uncertain.
Macroeconomic Imbalances Have Returned…
Policy space to confront the latest challenges remains thin as the region endures its third year of crisis. Over the past few years, as authorities have struggled to protect lives and livelihoods throughout the COVID-19 pandemic, fiscal positions have deteriorated, increasing regional public debt to about 60 percent of GDP. And with global supply chain disruptions adding to the fallout from the war in Ukraine, double-digit inflation is now present in about 40 percent of the region’s economies.
On public debt, regional indebtedness is now approaching levels last seen in the early 2000s before the impact of the Heavily Indebted Poor Countries Initiative, though with a different composition. The substitution of low-cost, long-term multilateral debt with higher-cost private funds has resulted in rising debt-service costs and higher rollover risks. Nineteen of the region’s 35 low-income countries are in debt distress or at high risk of distress. Out of the other ten countries of the region, three have faced spreads of more than 1,000 basis points at some point over the past six months (Angola, Gabon, Nigeria).
Policy space to confront the latest challenges remains thin as the region endures its third year of crisis. Over the past few years, as authorities have struggled to protect lives and livelihoods throughout the COVID-19 pandemic, fiscal positions have deteriorated, increasing regional public debt to about 60 percent of GDP
As a result, poverty, food insecurity, and malnutrition have been exacerbated, particularly in urban areas, with consequences not only for confidence and economic growth but also for social and political stability.
…Clouding the Economic Outlook…
The current upheaval comes at a most unfortunate time, as many countries are still dealing with the fallout from a pandemic that is far from over. Vaccination rates in sub-Saharan Africa are still only a fraction of those in other regions (21 percent of the population fully vaccinated), leaving many countries exposed to further illness and the possible emergence of new variants.
Nonetheless, as underscored in the April 2022 Regional Economic Outlook: sub-Saharan Africa, the region enjoyed a surprisingly strong recovery toward the end of 2021. With final GDP data for more countries, the growth figure for 2021 has been revised upward further to 4.7 percent.
However, the recent global turmoil has interrupted this progress. Regionwide, growth is expected to slow to 3.6 percent in 2022 and 3.7 percent in 2023 because of muted investment and an overall worsening balance of trade (in volume terms). Oil exporters will grow by 3.3 percent in 2022, and other resource-intensive countries by 3.1 percent. Even with a drop in their terms of trade, diversified non-resource-intensive countries will continue to be among the region’s more dynamic and resilient economies, growing by For 2022, the new growth projection for sub-Saharan Africa represents a relatively modest downgrade of −0.2 percent, compared with the April 2022 Regional Economic Outlook: sub-Saharan Africa—substantially less than the −0.9 percent revision for advanced economies.
But the modest revision masks some regional heterogeneity. South Africa’s 2022 growth projection, for example, was revised up as a robust recovery in services activity, amid lower COVID-19 cases, more than offset the adverse impacts of flooding, power cuts, and strikes. Elsewhere, 33 of the remaining 44 countries have revised their projections downward in light of a less-benign global outlook and cost-of- living pressures on domestic activity.
Domestically, the sociopolitical context for many countries is challenging. Seven countries will hold presidential and parliamentary elections over the next 12 months, and many others face rising popular dissatisfaction. In such circumstances, responding quickly to new shocks or pursuing long-needed reform may be more difficult. Several countries also continue to face elevated security concerns (Burkina Faso, Cameroon, Central African Republic, Chad, Ethiopia, Mali, Mozambique). Current projections assume a gradual de-escalation of political and military tensions. But if security risks persist or worsen, the economic outlook for these countries and their neighbors could deteriorate significantly.
Policymaking at the edge
For many policymakers in sub-Saharan Africa, the road ahead is daunting. With growing social needs, rising imbalances, and elevated risks, the recent crisis has pushed many of them even closer to the edge. Depleted buffers and shrinking policy space leaves little room for error, and decisions must often strike a difficult balance across competing demands, most notably:
Fighting fires. First and foremost, precedence should be given to saving lives. Throughout the COVID-19 crisis, the region was focused appropriately on immediate measures to protect the health and livelihoods of those at greatest risk. Now, a cost-of-living crisis is adding to an already fragile food security situation, requiring a similarly urgent response.
Building resilience. Faced with an uncertain and volatile outlook, authorities must reduce vulnera- bility to future shocks as best they can. In the first instance, this may require rebuilding buffers and insuring economies against larger tail risks.
Moving away from the edge. Ultimately, pro- gressing beyond the current situation will require high-quality growth over the medium term, suggesting that the premium on upfront structural reform is higher than ever. Strong growth is perhaps the most essential remedy available for the elimination of imbalances, as a growing economy means a growing tax base and more policy space— for an average African country, an additional 1 percentage point of annual GDP growth over a decade could reduce the debt ratio by close to 15 percentage points.
Four policy priorities
With these objectives in mind, each country must tailor its policy mix to its own circumstances. But for the region more broadly, the considerations described earlier suggest four pressing priorities.
Addressing Food Insecurity
By the end of 2022, 123 million people or 12 percent of sub-Saharan Africa’s population are expected to face acute food insecurity (two-thirds of the worldwide total), one-third of which have become acutely food insecure since the start of the pandemic. And of these, a large proportion are children in circumstances in which chronic hunger can permanently curtail future health and prospects. The rapid increase in food insecurity over the past two years is mainly due to (1) the fallout from the pandemic and the recent war in Ukraine, (2) a worsening security situation in some parts of the region, (3) a four-season drought in the Horn of Africa, and (4) other climate shocks (Angola, Madagascar). Areas of particular concern include the Democratic Republic of the Congo, Ethiopia, Nigeria, South Sudan, some parts of Kenya, and countries in the Sahel. The World Food Programme has identified the drought in the Horn of Africa as the world’s worst food emergency in 2022.
In addition to local factors (such as climate events or local conflicts), food security is shaped strongly by global food prices. Food accounts for almost 40 percent of sub-Saharan Africa’s consumption basket, and many countries are net importers of key staples (corn, rice, wheat). For some of these items, international prices have doubled since early 2020, while fuel and fertilizer prices have reached as much as triple, adding to transport costs and weighing on harvests. Moreover, climate-related events are worsening, which will further undermine food security regionwide.
Managing the Shift in Monetary Policies
Inflation in many advanced economies has reached its highest level in more than four decades, but the pickup has been less dramatic in sub-Saharan Africa. Median inflation is currently at about 9 percent, compared with a pre-COVID-19 level of a little more than 5 percent.
Moreover, as authorities consider the appropriate policy mix to fight inflation, it is notable that the drivers of inflation in many sub-Saharan African economies are different from those seen elsewhere. For example, one clear factor behind the recent global surge was the unprecedented policy stimulus employed by many of the largest economies, all aimed at supporting their economies during the pandemic. This level of support was not an option for most of sub-Saharan Africa, where limited policy space has instead muted the regional recovery. Similarly, analysis of the components of inflation in sub-Saharan Africa suggests that much of the recent increase has been due to external factors such as food and energy or swings in the exchange rate.
Consolidating Public Finances amid Tighter Financing Conditions
Public debt has increased steadily in sub-Saharan Africa for more than a decade, rising sharply in recent years owing to increased spending and falling revenues in the wake of the COVID-19 crisis. About half of the countries are expected to undertake some consolidation this year—regionwide deficits are projected to narrow by about 1⁄2 percent of GDP after a larger consolidation of about 11⁄4 percent in 2021, bringing average debt at end-2022 down to around 55 percent of GDP. Approximately one-third of the region’s economies now have debt levels above 70 percent of GDP.
Inflation in many advanced economies has reached its highest level in more than four decades, but the pickup has been less dramatic in sub-Saharan Africa. Median inflation is currently at about 9 percent, compared with a pre-COVID-19 level of a little more than 5 percent
Global financial conditions are set to become less forgiving. Much of the current debt has been contracted during a period of historically low interest rates. Looking ahead, as global policy rates normalize, financial conditions will continue to tighten, adding to external borrowing costs and weighing on sub-Sahara Africa’s debt dynamics. Over the next few years, already-high interest payments are projected to increase as a proportion of revenue, exceeding 50 percent in some cases and far surpassing the burdens seen in other regions.
Setting the Stage for Sustainable and Greener Growth
Ultimately, sub-Saharan Africa’s future prosperity and resilience will require high-quality growth, especially because the region’s population is expected to double over the next three decades. Within 10 to 15 years, more than half of the world’s job market entrants will come from sub-Saharan Africa.
For countries with limited fiscal space, providing these job entrants with new opportunities will require a pivot from government-led growth toward private sector innovation and activity. Most of these reforms are long-standing priorities that predate the recent crisis, including enhancing competition, removing key bottlenecks to doing business, improving governance, fostering trade integration, and broadening financial inclusion.
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