Sub-Saharan Africa, hobbled by soaring inflation and higher borrowing costs as a result of the Ukraine war, will suffer its second consecutive year of slowing growth this year, the International Monetary Fund says.
Half of Africa’s countries are now burdened with double-digit inflation and most have lost their access to bond markets, while foreign aid to Africa has fallen into decline, the IMF said in a report on Friday.
“A funding squeeze has hit the region hard,” the IMF said. “Public debt and inflation are at levels not seen in decades.”
The rising cost of living is hurting the most vulnerable Africans and adding to social pressures in many countries, at a time when their governments are struggling with the escalating cost of public debt and a cut in their access to credit markets, it said.
“No country has been able to issue a Eurobond since spring 2022,” the report said. “A shortage of funding may force countries to reduce resources for critical development sectors like health, education and infrastructure, weakening the region’s growth potential.”
The IMF forecasts that growth in sub-Saharan Africa will drop to 3.6 per cent this year, down from 3.9 per cent last year and 4.8 per cent in the previous year.
African growth is also being dragged down by the severe electricity cuts of up to 12 hours per day in South Africa, the region’s most advanced economy. The IMF has cut its growth forecast for South Africa to a minimal 0.1 per cent this year, largely because of the power cuts. This is down from an earlier forecast of 1.2 per cent in January, and drastically reduced from the country’s estimated 2-per-cent growth last year.
“The region’s resilience is being severely tested,” said Abebe Aemro Selassie, director of the IMF’s African Department, in a briefing on Friday at the IMF’s spring meetings in Washington.
“External market access has been sharply curtailed, overseas development assistance continues to trend downwards, and the region has seen a recent reduction in other investments also,” he said.
The funding crisis in Africa could have a global impact, he said. By 2040, a third of the world’s new labour-market entrants will be from sub-Saharan Africa, yet its education spending is being jeopardized.
“Skilled, educated workers will be vital to the health and stability of the global economy, but today’s funding squeeze may impact the region’s ability to provide them,” Mr. Selassie told the briefing.
“I’ve always said that this is the African century, but if measures are not taken to address this funding squeeze now, the region could be held back from developing its potential.”
For years, many African countries have become increasingly reliant on bond sales. But this has left them vulnerable as global interest rates climb in the aftermath of Russia’s invasion of Ukraine. Much of their debt service is denominated in U.S. dollars, adding further costs as their exchange rates deteriorated, the IMF said.
Interest payments, as a share of revenue, have doubled for the average African country over the past decade, it said. “Added to that, a long-term decline in aid budgets and a more recent fall in inflows from China have further constrained the ability of countries to meet development needs.”
The trend was confirmed this week in an OECD report, which found a decline in foreign aid to the world’s least-developed countries last year, including African countries. Bilateral aid to those countries dropped by 0.7 per cent last year, the OECD said.
A major reason for this decline was the diversion of foreign aid to Ukraine, including Ukrainian refugees. In overall terms, foreign aid increased to an all-time high of US$204-billion last year, but this included more than US$29-billion that never left the donor countries. It was spent on processing and housing refugees, and under OECD rules the donor countries can count this as foreign aid.
In Canada, under the federal budget unveiled last month, the country’s planned foreign aid will be scaled back by 15 per cent compared to last year’s budget, according to estimates by Canadian aid groups.
“Supporting refugees is absolutely the right thing to do, but it should not come at the expense of aid to other countries experiencing food insecurity, record inflation and rising debt costs,” said Sara Harcourt, a development finance expert at ONE, a global anti-poverty organization, in a tweet this week.