IMF Calls for International Support to Boost Economic Growth in Sub-Saharan Africa

The International Monetary Fund   (IMF) has called on the international community to increase funding for countries in Sub-Sahara to grapple with high borrowing interest, low domestic mobilization, and military instability. 

In its 2024 Regional Economic Outlook document titled “Sub-Saharan Africa — A Tepid and Pricey Recovery”, the IMF said although regional outlook is gradually improving, economic activity is tepidly picking up rising growth from 3.4 percent in 2023 to 3.8 percent in 2024.

“However, not all is rosy, and the funding squeeze continues.”

It added that the region’s governments continue to grapple with financing shortages, high borrowing costs, and rollover risks amid persistently low domestic resource mobilization.

Screenshot from the document

This,  the IMF said, would lead to countries cutting important public spending and redirect development funds to debt service thereby endangering growth prospects for future generations.

“Economic recovery is expected to continue beyond this year, with growth projected to reach 4.0 percent in 2025. In parallel, median inflation has almost halved from nearly 10 percent in November 2022 to about 6 percent in February 2024.” 

“The funding squeeze partly reflects a reduction in the region’s traditional funding sources, particularly Official Development Assistance. Gross external financing needs for low-income countries in sub-Saharan Africa are estimated to exceed $70 billion annually (6 percent of GDP) over the next four years.” 

According to the document, governments are seeking alternative financing options to address public spending and the economic overhaul, which are typically associated with higher charges, less transparency, and shorter maturities. “The cost of borrowing—both domestic and external—has increased and continues to be elevated for many.” 

“In 2023, government interest payments took up 12 percent of its revenues (excluding grants) for the median sub-Saharan African country, more than doubling from a decade ago.” 

The document added that this is also affecting the private sector through has also “higher interest rates”. “The region continues to be more vulnerable to global shocks, particularly from weaker external demand and elevated geopolitical risks. Moreover, countries in sub-Saharan Africa face rising political instability and frequent climate shocks.” 

“The region faces a critical year with 18 national elections in 2024. Similarly, climate shocks are becoming more frequent and widespread, including droughts of unparalleled severity.” 

Financial Market Continues Amid High Cost

According to the document, although countries in the Sub-Sahara have suffered four turbulent years of economic struggle, the countries appear to finally be on the mend. “With the easing of global financial conditions, Côte d’Ivoire, Benin, and Kenya issued Eurobonds earlier this 2024, ending a two-year hiatus from international markets for the region.” 

“Public debt ratios have broadly stabilized, and some capital flows are making a tentative comeback.”

Improvement in macroeconomic imbalances was high in 2023 leading to a drop in inflation from 10 to 6 percent. Countries have continued consolidation efforts, with the median fiscal deficit narrowing to 4.0 percent of GDP in 2023, the lowest since the onset of the pandemic. Consequently, public debt ratios have largely stabilized at around 60 percent of GDP in 2023 and are projected to ease this year. 

“There are also tentative signs that select capital flows are making a comeback to the region. After several years of sluggish inflows, foreign direct investment (FDI) into the region rose to 2.0 percent of GDP in 2023, indicating a continuation of the post-pandemic recovery..”

A call for inclusive Growth 

The support from the International Community will help Sub-Saharan countries increase social spending. According to the IMF  in recent years, nearly all new IMF programs in sub-Saharan Africa have included social spending targets, with an estimated median set at around 2 percent of GDP over 2022 and 2023. Attention to climate issues has grown as well. 

Benin, Cabo Verde, Cameroon, Côte d’Ivoire, Kenya, Niger, Rwanda, Senegal, and Seychelles have secured arrangements under the new Resilience and Sustainability Facility, says IMF. 

“The IMF also plays a crucial role in capacity development (CD), providing technical assistance and training. Notably, sub-Saharan Africa received nearly 40 percent of the IMF’s direct CD delivery in 2023.” 

The IMF urged that the forthcoming Domestic Resource Mobilization Initiative, designed to help tackle funding challenges and assist countries in securing resources for development needs, should prove especially valuable for the region. “Finally, three key milestones highlight the IMF’s concerted efforts to meet the evolving needs of the region.” 

Since 2020, there has been a surge in demand for financial assistance across the region, with the IMF disbursing $34 billion in financing, much of it on concessional terms. The 2021 Special Drawing Rights (SDR) allocations contributed another $23 billion, bringing the total support to approximately $58 billion, which also includes $0.8 billion from the Catastrophe Containment and Relief Trust. 

“Currently, more than half of sub-Saharan African countries (27 out of 45) benefit from IMF financing arrangements, with around $6 billion distributed in 2023 alone. 

IMF’s Recommendations 

While the IMF initiates calls for more international support to Sub-Saharan Countries, the IMF has recommended Improved public finances that focus on revenue mobilization, Monetary policy that focuses on ensuring price stability and implementing structural reforms such as expediting trade integration and improving the business environment to attract more foreign direct investments could diversify funding sources and the economy. 

“Sub-Saharan African countries will need more support from the international community, with multilateral and regional development banks potentially exploring options to further leverage their balance sheets to support a more inclusive, sustainable, and prosperous future.”