South Africa’s muted economic growth is expected to drag the prospects of the whole sub-Saharan African region lower in 2023, as the country is the most-industrialised economy in the region.
This was the warning issued by the International Monetary Fund (IMF) during the release of its sub-Saharan African Regional Economic Outlook for 2023 report in Washington DC on Friday.
The IMF has already maintained its projection that South Africa’s growth would decelerate sharply to 0.1% in 2023, weighed down by an intensification of power outages; a weaker external environment; and, a negative carry-over effect from the growth slowdown at the end of 2022.
The ongoing energy crisis has already slashed at least two percentage points off South African economic growth forecasts for 2023, as intensified power cuts cripple industrial and business activity.
IMF director of the African department Abebe Aemro Selassie said activity was expected to recover in 2024 as the energy crisis abates and the external environment improves.
However, Selassie said growth among oil exporters in the region was projected to decelerate in 2024 to 3.1%, from 3.3% in 2023, mostly because of the continued decline in crude oil prices and production slowdowns.
“Many countries will register a small pick-up in growth this year, especially non-resource-intensive economies, but the regional average will be weighed down by sluggish growth in some key economies, such as South Africa,” Selassie said.
“Growth across the region varies from country to country. Some countries, particularly those in the East African Community, or non-oil resource intensive countries, are expected to fare better, but some major economies bring down the average sub-Saharan Africa growth rate, like South Africa, where growth is projected to decelerate sharply to only 0.1% in 2023.”
Meanwhile, the IMF said growth in sub-Saharan Africa would decelerate to 3.6% before rebounding to 4.2% in 2024, in line with a global recovery, subsiding inflation and a winding down in monetary policy tightening.
This will be the second consecutive year that the region records a lower rate of growth than the previous year.
The IMF said public debt and inflation were at levels not seen in decades, with double-digit inflation present in half of the countries, which was eroding household purchasing power and striking at the most vulnerable.
It said the rapid tightening of global monetary policy had raised borrowing costs for sub-Saharan African countries, both on domestic and international markets .
This comes as all sub-Saharan African frontier markets have been cut off from market access since spring 2022.
According to the IMF, the US dollar effective exchange rate reached a 20-year high last year, increasing the burden of dollar-denominated debt service payments.
As a result, interest payments as a share of revenue have doubled for the average sub-Saharan African country over the past decade.
Selaisse said with shrinking aid budgets and reduced inflows from partners, this was leading to a big funding squeeze for the region.
“People in sub-Saharan Africa are feeling the effects of a funding crisis. Since Russia’s invasion of Ukraine, cost of living is more expensive, borrowing costs have increased and access to cheaper funding is dwindling,” Selassie said.
“Coupled with a long-term decline in aid and a more recent fall in investment from partners, this means that there is less money to be spent on vital services like health, education and infrastructure.
“If measures are not taken, this funding squeeze will hamper sub-Saharan’s efforts to build a skilled and educated population, and to be the driving force of the global economy in years to come.”
To address macroeconomic imbalances, Selassie pointed to four priorities that regional economies should adopt, including: consolidating public finances; containing inflation; allowing exchange rates to adjust; and, ensuring important efforts to tackle climate change do not crowd out financing for basic needs such as health and education.
“First, it is important to consolidate public finances and strengthen public financial management amid difficult funding conditions. This will rely on continued revenue mobilisation, better management of fiscal risks and more proactive debt management. For countries that require debt reprofiling or restructuring, a well-functioning debt-resolution framework is vital to creating fiscal space,” Selaisse said.
“Second, containing inflation. Monetary policy should be steered cautiously until inflation is firmly on a downward trajectory and projected to return to the central bank’s target range.
“Third, allowing the exchange rate to adjust, while mitigating the adverse effects on the economy, including the rise in inflation and debt due to currency depreciations.
“And finally, ensuring that important efforts to tackle climate change do not crowd out basic needs, like health and education. Climate finance provided by the international community must come on top of current aid flows.”
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