Pierre Laporte
The World Bank says global headwinds are slowing Africa’s economic growth as countries continue to contend with rising inflation, hindering progress on poverty reduction.
According to the Bretton Woods institution, the “risk of stagflation” comes at a time when high interest rates and debt are forcing African governments to make difficult choices in an attempt to protect jobs for their citizens, purchasing power and development gains.
World Bank Chief Economist for Africa, Andrew Dabalen, who said this, indicated that the war in Ukraine is exacerbating “already high inflation and weighing on economic activity” by depressing both business investments and household consumption.
He noted that 29 out of 33 countries in Sub-Saharan Africa (SSA), as of July 2022, had inflation rates over 5% while 17 countries had double-digit inflation.
“These trends compromise poverty reduction efforts that were already set back by the impact of the COVID-19 pandemic,” Mr. Dabalen said, and added, “What is most worrisome is the impact of high food prices on people struggling to feed their families, threatening long-term human development.”
“This calls for urgent action from policymakers to restore macro-economic stability and support the poorest households while reorienting their food and agriculture spending to achieve future resilience,” he intimated.
He continued that elevated food prices were causing hardships, with severe consequences in one of the world’s most food-insecure regions.
“Hunger has sharply increased in SSA in recent years driven by economic shocks, violence and conflict, and extreme weather,” the World Bank Chief Economist stated.
He revealed that more than one in five people in Africa suffer from hunger and an estimated 140 million people faced acute food insecurity in 2022, up from 120 million people in 2021, and said this was according to the Global Report on Food Crises 2022 Mid-Year Update.
He said the bank’s latest Africa’s Pulse, a biannual analysis of the near-term regional macroeconomic outlook, indicates that economic growth in Sub-Saharan Africa was set to decelerate from 4.1% in 2021 to 3.3% in 2022, a downward revision of 0.3 percentage points since April’s Pulse forecast, mainly as a result of a slowdown in global growth, including flagging demand from China for commodities produced in Africa.
“The interconnected crises come at a time when the fiscal space required to mount effective government responses is all but gone.
“In many countries, public savings have been depleted by earlier programmes to counter the economic fallout of the COVID-19 pandemic, though resource-rich countries in some cases have benefited from high commodity prices and managed to improve their balance sheet,” the bank asserted.
The international financial institution said debt is projected to stay elevated at 58.6% of GDP in 2022 in SSA, adding that, “African governments spent 16.5% of their revenues servicing external debt 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 high risk of joining them.”
“At the same time, high commercial borrowing costs make it difficult for countries to borrow on national and international markets, while tightening global financial conditions are weakening currencies and increasing African countries’ external borrowing costs.
“This challenging environment makes it essential to improve the efficiency of existing resources and to optimise taxes. In the agriculture and food sector, for example, governments have the opportunity to protect human capital and climate-proof food production by re-orienting their public spending away from poorly targeted subsidies toward nutrition-sensitive social protection programmes, irrigation works, and research and development known to have high returns,” it added.
By Ernest Kofi Adu