African governments urgently need to restore macroeconomic stability and protect the poor against a backdrop of slow growth and high inflation
WASHINGTON, Oct. 4, 2022 — Global headwinds are slowing Africa’s economic growth as countries continue to grapple with rising inflation, hampering progress on poverty reduction. The risk of stagflation comes at a time when high interest rates and debt are forcing African governments to make tough choices as they try to protect people’s jobs, purchasing power and development gains.
According to the latest from the World Bank Africa’s pulseA semi-annual analysis of the near-term regional macroeconomic outlook, economic growth in sub-Saharan Africa (SSA) is expected to slow to 3.3% in 2022 from 4.1% in 2021, a downward revision of 0.3 percentage points since April pulse Forecast primarily as a result of a slowdown in global growth, including slowing demand from China for African-produced commodities. The war in Ukraine is exacerbating already high inflation and weighing on economic activity, depressing both business investment and private consumption. As of July 2022, 29 out of 33 countries in SSA with available information had inflation rates above 5%, while 17 countries had double-digit inflation.
“These trends are hampering poverty reduction efforts, which have already been set back by the impact of the COVID-19 pandemic,” said Andrew Dabalen, World Bank Chief Economist for Africa. “what is Of greatest concern is the impact of high food prices on people struggling to feed their families, threatening long-term human development. This requires urgent action by policymakers to restore macroeconomic stability and support the poorest households, while rebalancing their spending on food and agriculture to achieve future resilience.”
Elevated food prices are causing hardship with dire consequences in one of the world’s most food insecure regions. Hunger has increased sharply in SSA in recent years due to economic shocks, violence and conflict, and extreme weather conditions. According to the Global Report on Food Crises 2022 Mid-Year Update, more than one in five people in Africa suffer from hunger and an estimated 140 million people were affected by acute food insecurity in 2022, up from 120 million people in 2021.
The interconnected crises come at a time when the fiscal space needed for effective government action has all but disappeared. In many countries, public savings have been drained by previous programs to combat the economic fallout from the COVID-19 pandemic, although in some cases resource-rich countries have benefited from high commodity prices and improved their balance sheets.
Debt is expected to remain elevated in SSA at 58.6% of GDP in 2022. African governments spent 16.5% of their revenues on debt servicing in 2021, up from less than 5% in 2010. Eight out of 38 IDA-eligible countries in the region are in debt distress and 14 are at risk of joining them. At the same time, high commercial borrowing costs are making it more difficult for countries to borrow in domestic and international markets, while tightening global financing conditions are weakening currencies and increasing external borrowing costs for African countries.
This challenging environment makes it imperative to improve the efficiency of existing resources and optimize taxes. In the agri-food sector, for example, governments have an opportunity to protect human capital and climate-resilient food production by rebalancing public spending away from poorly targeted subsidies toward nutrition-sensitive social protection programs, irrigation works, and research and development known to provide high levels of funding to have returns.
For example, a dollar invested in agricultural research yields, on average, $10 in benefits, while returns from investments in irrigation in SSA are also potentially large. Such reprioritization sustains spending levels in a critical sector while increasing productivity, building resilience to climate change, and achieving food security for all. Creating a better environment for agribusiness and facilitating intra-regional food trade could also increase long-term food security in a region heavily dependent on food imports.
PRESS RELEASE NO: 2022/015/AFE
Daniella van Leggelo-Padilla