The economic outlook for African economies is showing signs of improvement, with the World Bank projecting a rebound in growth to 3.4% in 2024, up from a low of 2.6% in the previous year.
This positive trajectory is expected to continue into 2025, with growth forecasted to reach 3.8%. One of the driving forces behind this resurgence is increased private consumption coupled with declining inflation, particularly in sub-Saharan Africa. These factors are contributing to a more favorable economic environment, fostering resilience amid global uncertainties.
Andrew Dabalen, World Bank chief economist for Africa said “Per capita GDP growth of 1 percent is associated with a reduction in the extreme poverty rate of only about 1 percent in the region, compared to 2.5% on average in the rest of the world”.
“In a context of constrained government budgets, faster poverty reduction will not be achieved through fiscal policy alone. It needs to be supported by policies that expand the productive capacity of the private sector to create more and better jobs for all segments of society.”
Andrew Dabalen
The report highlights that external resources to meet gross financing needs of African governments are shrinking and those available are costlier than they were prior to the pandemic.
Political instability and geopolitical tensions weigh on economic activity and may constrain access to food for an estimated 105 million people at risk of food insecurity due to conflict and climate shocks.
African governments’ fiscal positions remain vulnerable to global economic disruptions, necessitating policy actions to build buffers to prevent or cope with future shocks.
What’s more, inequality in Sub-Saharan Africa remains one of the highest in the world, second only to the Latin America and Caribbean region, as measured by the region’s average Gini coefficient.
Access to basic services, such as schooling or healthcare, remains highly unequal despite recent improvements. Disparities also exist in access to markets and income-generating activities, irrespective of people’s skills. Taxes and poorly targeted subsidies may also have an outsized impact on the poor.
“Inequality in Africa is largely due to the circumstances in which a child is born and accentuated later in life by obstacles to participating productively in markets and regressive fiscal policies,” said Gabriela Inchauste co-author of a forthcoming World Bank report on tackling inequality in Sub-Saharan Africa. She added that “Identifying and better addressing these structural constraints across the economy offers a road map for a more prosperous future”.
Recovery Remains Fragile
However, despite these encouraging trends, the recovery remains fragile, as highlighted in the World Bank’s latest Africa’s Pulse report. Challenges such as mounting debt service obligations, frequent natural disasters, and escalating conflict and violence pose significant risks to sustained economic progress.
To ensure long-term growth and effectively reduce poverty, the report emphasizes the necessity of implementing transformative policies aimed at addressing deep-rooted inequality. While inflation is showing signs of cooling across most economies, it remains relatively high compared to pre-pandemic levels, posing a persistent challenge to economic stability.
Moreover, although the growth of public debt is slowing, a significant portion of African governments are grappling with external liquidity problems and unsustainable debt burdens. These issues underscore the importance of prudent fiscal management and debt sustainability measures to safeguard economic stability and foster sustainable growth.
Despite the projected boost in growth, the pace of economic expansion in the region still lags behind the levels seen in the previous decade, highlighting the need for concerted efforts to accelerate progress. Structural inequality continues to hinder the effectiveness of economic growth in poverty reduction efforts, underscoring the importance of inclusive growth policies and targeted interventions to address disparities across various segments of society.
Meanwhile, Africa’s Pulse calls for several policy actions to foster stronger and more equitable growth. These include restoring macro-economic stability, promoting inter-generational mobility, supporting market access, and ensuring that fiscal policies do not overburden the poor.
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