The 2023 Annual Meetings of the IMF kicked off on October 9th in Marrakech, exactly a month after a 6.8 magnitude earthquake devastated many parts of Morocco. The hosting of the event in Marrakech was a true manifestation of the courage and resilience of the country.
The meeting that ended on October 15 announced some somber forecasts. It projected a weaker global economic outlook forecasting a decline of the global economic growth from 3.5 percent in 2022 to 3 percent this year and 2.9 percent next year.
In the case of Sub-Saharan Africa, though the outlook for 2023 continued to trail behind, the forecast for 2024 looks promising. The year 2023 posed a host of challenges for the region. It continued to suffer from the impact of the Russia-Ukraine war including worldwide inflation, high borrowing costs, cost-of-living crisis, falling international demand, exchange rate pressures, and so on. As a result, growth in Sub Saharan Africa in 2023 is projected to fall for the second year in a row to 3.3 percent from 4.0 percent in 2022.
Nevertheless, the Fund is cautiously optimistic about the region. It is expected to rebound to 4.0 percent growth in 2024. The optimism is based on the improving performances of almost four-fifths of sub-Saharan Africa’s economies, and better performances in non-resource-intensive countries. The Regional economic outlook of the international financial institution noted that the macroeconomic balances are gradually improving, inflation is dropping, and public finances are looking better for most of the region.
However, several internal and external factors can undermine the rebound. The internal risk factors include a slowdown in reform efforts, a rise in political instability within the region, or external factors like the slowing down of China.
To ensure the projected growth for 2024, the Regional economic outlook by the IMF highlights four major challenges of the region, for careful policy intervention.
The first priority of the region is to keep inflation under control. The inflation rate in almost 14 countries in the region is in double digits. The IMF has recommended strict monetary tightening to cool the inflation.
The second priority of the region should be to reign in exchange rate pressures. Most African countries follow a pegged exchange rate regime. The best example is CFA, the currency used by eight independent states in West Africa that make up the West African Economic and Monetary Union (UEMOA; Union Économique et Monétaire Ouest Africaine). As a result, the Euro has remained the dominant anchor currency, followed by the US Dollar and the South African Rand. To manage exchange rate pressures, the IMF has advised currency-pegged countries to align monetary policy with the anchor country. For the countries with floating exchange rates, IMF advocates allowing the currencies to adjust along with appropriate policy measures. Tighter monetary policy to check inflation, structural reforms to promote exports, and fiscal consolidation are other measures recommended by the IMF to control fiscal deficit and ease exchange rate pressures.
Containing debt vulnerabilities is another vital step towards strengthening economic growth. Given the crunch in funding, and high borrowing rates, rescheduling of debt could be tough, exposing many low-income countries to debt distress. To manage debt obligations, countries must formulate a fiscal policy that works towards better mobilisation of domestic revenue and adopt a prudent approach towards spending and borrowing.
The widening economic divergence within the region, particularly between resource-rich and non-resource economies is the fourth barrier to growth. The Regional Economic Outlook noted that boosting per capita income requires wide-ranging structural reforms, including investment in education, better natural resource management, improved business climate, digitalization, and a commitment to trade integration.
Even though Outlook looks reassuring, it is too early to celebrate. Inflation is still reigning high, borrowing costs are soaring, exchange-rate pressures persist, and political instability is a growing concern.
To complicate matters, the outbreak of the war between Israel and Hamas has the potential to push the global economy into a deeper recession endangering the fragile recovery of the Sub-Saharan African economies. An early realisation by leaders and people of Africa that the solution to Africa’s economic woes lies within the continent will help it to surge ahead. Strengthening collaboration within the continent by lowering trade barriers, drumming up domestic and intra-African investment, and trade integration through early implementation of AfCTA holds the key to Africa’s economic survival and growth.
