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Africa: IMF sounds alarm on declining aid, rising debt

April 14, 2023

The International Monetary Fund warned that a "big funding squeeze" was slowing growth in sub-Saharan Africa. It said debt relief was essential for low-income African countries.

https://p.dw.com/p/4Q7RN
Workers carry sacks of grain in a warehouse run by the World Food Program in Abala, Ethiopia, on June 9, 2022.
Dozens of poor nations are close to financial stressImage: Eduardo Soteras/AFP/Getty Images

The International Monetary Fund on Friday warned a shortage of funding for sub-Saharan Africa was negatively impacting the region, slowing growth and threatening dire consequences.

The warning comes as central bank chiefs and financial regulators descend on Washington this week for the International Monetary Fund-World Bank's Spring Meetings.

Kristalina Georgieva, the managing director of the IMF, earlier this month said the world economy was expected to grow less than 3% this year, calling it the "lowest medium-term growth forecast since 1990."

The world is looking at rising hunger and poverty globally, as economies grapple with the impact of the war in Ukraine, such as higher food and fuel prices, and rising inflation, Georgieva said.

Financial regulators are discussing sovereign financing for developing economies, but appear to be locked in a disagreement over ways to make low-income economies more stable.

What to know about economic growth in Africa

This is second consecutive year of an aggregate decline in sub-Saharan Africa, the IMF said.

Public debt was at 56% of gross domestic product at the end of last year, its highest level since the beginning of the 2000s, according to the fund.

If no measures are taken, a shortage of funding may force countries in the region to reduce fiscal resources for critical development like health, education, and infrastructure.

The rising government debts and their increased threat to low-income countries stem in large part from global interest rates rises aiming to counter inflation — meaning repayment terms become more challenging, and the war in Ukraine, experts have said.

As a result, double-digit inflation in half of the countries was eroding purchasing power and hitting the most vulnerable, the IMF added. Inflation tends to be felt most keenly by those already struggling to pay the bills.

A strong US dollar, the currency in which most sovereign debt is repaid, was also making the region's relative debt burden heavier, the IMF warned.

"The US dollar effective exchange rate reached a 20-year high last year, increasing the burden of dollar-denominated debt service payments. Interest payments as a share of revenue have doubled for the average [sub-Saharan African] country over the past decade," the IMF said in its report.

The IMF did however say that the region was not helpless and recommended four steps for governments to mitigate the damage: consolidating public finances and avoiding excess spending, keeping inflation in check, allowing exchange rates to adjust while managing any negative impacts on the economy, and "ensuring important efforts to tackle climate change do not crowd out financing for basic needs like health and education." 

The Organization for Economic Cooperation and Development this week noted that while international aid to Ukraine surged last year amid the war, it dropped for Africa.

rm/msh (AFP, Reuters)