A report by International Monetary Fund has disclosed that Sub-Saharan Africa’s Gross Domestic Product (GDP) growth would slow to 3.8 percent. This, the IMF attributed to the after-effect of the Russia-Ukraine war.

According to the IMF, Sub-Saharan African countries face another severe and exogenous shock. The report revealed that Russia’s invasion of Ukraine has prompted a surge in food and fuel prices that threatens the region’s economic outlook.

According to the report, this latest setback could not have come at a worse time, as growth was starting to recover and policymakers were beginning to address the social and economic legacy of the COVID-19 pandemic and other development challenges. The effects of the war will be deeply consequential, eroding living standards and aggravating macroeconomic imbalances, IMF predicted.

“We now expect growth to slow to 3.8 percent this year from last year’s better-than-expected 4.5 percent. Though we project annual growth to average 4 percent over the medium term, it will be too slow to make up for ground lost to the pandemic. Inflation in the region is expected to remain elevated in 2022 and 2023 at 12.2 percent and 9.6 percent, respectively—the first time since 2008 that regional average inflation will reach such high levels.”
IMF report

Careful policy response needed to address challenges

The IMF has advised African regional policymakers to design workable policies to help solve the challenges.

“Fiscal policy will need to be targeted to avoid adding debt vulnerabilities. Policymakers should, as much as possible, use direct transfers to protect the most vulnerable households. Improving access to finance for farmers and small businesses would also help.”
IMF report

The IMF further advised that countries that can’t provide targeted transfers like Ghana can use temporary subsidies or targeted tax reductions, with precise end dates, adding that they can protect households by giving time to adjust to international prices more gradually.

“Digital technology, such as mobile money or smart cards, could be used to target social transfers better, as Togo did during the pandemic. Net commodity-importers, such as Benin, Ethiopia, and Malawi, will need to find resources to protect the vulnerable by reprioritizing spending. Net exporters, like Nigeria, are likely to benefit from rising oil prices, but a fiscal gain is only possible if the fuel subsidies they provide are contained.”
IMF report

The IMF cautioned that central banks would need to monitor price developments carefully and raise interest rates if inflation expectations drift up to navigate the trade-off between curbing inflation and supporting growth.

“They must also guard against the financial stability risks posed by higher rates and maintain a credible policy framework underpinned by strong independence and clear communication,” the report revealed.

The need for international solidarity

The international community should ease the food security crisis, the report disclosed. The IMF’s recent joint statement with the World Bank, the United Nations World Food Programme, and the World Trade Organization called for emergency food supplies, financial support, including grants, increased agricultural production, and unhindered trade, among other measures.

The commitment by the Group of Twenty countries to re-channel $100 billion of IMF Special Drawing Rights (SDR) allocation to vulnerable countries would be a significant contribution to the region’s short-term liquidity needs and longer-term development, the report revealed.

The report further suggested that restoring debt sustainability will require debt re-profiling or an outright restructuring of their public debt for some countries. To make this a reality, the G20 Common Framework needs to define its debt restructuring process and timeline better and enforce the comparability of treatment among creditors, IMF noted.