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IMF Draws Mixed Picture for Sub-Saharan Africa

FILE - Job seekers wait beside a road for casual work offered by passing motorists in Eikenhof, south of Johannesburg, South Africa, March 3, 2022
FILE - Job seekers wait beside a road for casual work offered by passing motorists in Eikenhof, south of Johannesburg, South Africa, March 3, 2022

WASHINGTON - The International Monetary Fund (IMF) Friday released its 2023 Regional Economic Outlook for sub-Saharan Africa, projecting the region to have positive economic prospects but also serious economic challenges due to a "big funding squeeze."

The 53-page IMF regional report titled "The Big Funding Squeeze" says "crisis is hitting the region hard," a prognosis that reflects a decline in global economic development. However, according to the report's findings, sub-Saharan Africa would expand faster than wealthy nations.

Here are the details:

Promising Real GDP?

Real Gross Domestic Product (GDP) refers to the price or value of all goods and services an economy produces in a given year, taking into account the effects of inflation.

In its World Economic Outlook report released this week, the IMF forecasts that the Real GDP in advanced economies like Europe, for example, would expand by 0.8% in 2023, improving in 2024 to reach an average of 1.7%.

The same report also expects that developed Asian economies like Japan, Korea, Taiwan, Singapore and other countries in the region, would perform moderately, with a stable GDP growth rate of 1.8% expected in 2023 and 2024.

Meanwhile, the IMF regional report says the economy of the sub-Saharan region is projected to "decelerate in 2023 for the second year in a row," to reach 3.6% in 2023, a 0.2% decrease from 2022. However, the data also shows that the growth will rebound to 4.2% in 2024.

IMF: Growth in Sub-Saharan Africa to Slow to 3.6% in 2023
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"There's a lot of variation that these headline numbers mask. South Africa, for instance, is not doing as well [as some countries in the region] ... its growth forecast is at 0.1% for this year, 2023," Deputy Division Chief at the IMF and report team lead Wenjie Chen told VOA. "But the other countries indeed are doing much better, and many of them are in fact registering growth upticks from last year compared to this year going up," she added.

Is Sub-Saharan Africa poised for output growth?

The IMF data forecasts the sub-Saharan region to beat the majority of developed countries in terms of output growth, which measures the change in the total value of goods and services a country produces over a certain time period. In other words, output growth measures the change in real GDP over a specific period of time. And, when the production growth is positive, the economy is considered to be expanding; when it is negative, the economy is said to be contracting.

According to the IMF, advanced economies including the U.S., the Euro Area, the United Kingdom and Canada would experience a sharp decline in output growth, going from 2.7% in 2022 to 1.3% in 2023 and 1.4% in 2024.

However, the report expects sub-Saharan Africa to experience an average of 3.6% output growth in 2023 and 4.2% in 2024, "driven by higher private consumption and investment," the report says.

It's worth mentioning, as economists point out, that output growth and real GDP do not convey the entire picture of an economy's health, since figures can be misleading when other economic factors, such as inflation or GDP per capita are not considered.

"Sub-Saharan Africa has a much higher population growth rate than the rest of the world. So in that sense, what we see here with this year being a second year in a row in terms of consecutive growth declines, that is actually quite worrisome for per capita GDP growth catch up," Chen said.

Debt, inflation and funding squeeze

The report notes that last year, the effective exchange rate for the U.S. dollar reached a 20-year high, making it more challenging for sub-Saharan African countries to fulfill their debt servicing obligations in dollars.

"External debt portion that's denominated in U.S. dollars was increasing. So that adds to the funding squeeze," Chen noted.

Adding to this, according to the report, aid budgets have been shrinking, which "further constrained the ability of countries to meet development needs."

Inflation rates in sub-Saharan Africa are likely to be higher than in advanced economies, according to the IMF estimates, which predicts 14% of the average inflation rate in 2023 and 10.5% in 2024. These are high rates than those expected in advanced regions, like North America or Europe, which is set to have 10.5% and 6.5% inflation rates in 2023 and 2024 respectively.

"The quick contractionary monetary policies to fight inflation have resulted in higher interest rates globally and increased debt for the region," World Bank analyst Mohamed Safi told VOA.

Policy recommendations

The report concludes with four policy recommendations to help mitigate the projected economic distress in the region, which suggest:

Enhancing public financial management by revenue mobilization, a process that entails raising more money through taxes, tariffs, fees, fines, and other sources of revenue, in order to finance public services and infrastructure projects in sectors like healthcare, transportation, and social welfare.

Second, calibrating the pace of monetary policy to contain inflation by adjusting the rate by which central banks raise interest rates, "until inflation is firmly on a downward trajectory, and on track to reach the central bank’s target range," the report says.

Third, allowing the exchange rate to adjust by insulating the economy from external shocks.

Lastly, the report suggests ensuring funding for essential needs, such as health and education, does not get displaced by the crucial response to climate change. The report says climate financing must come in tandem with current aid flows.

Editor's Note: This article was updated to include additional report information.