Owing to a funding squeeze resulting from declining aid and access to private finance, International Monetary Fund (IMF) said growth in sub-Saharan Africa would drop to 3.6 percent in 2023.
At a briefing on Friday, Abebe Aemro Selassie, Director of the IMF’s African Department noted that a shortage of funding may force countries to reduce fiscal resources for critical development like health, education, and infrastructure, holding the region back from developing its true potential if no measures are taken.
“I wish I was bearing better news, but unfortunately, we’re expecting growth to decelerate from 3.9% to 3.6% in 2023. And this to a large extent reflects the big funding squeeze countries are facing at the moment,” said Selassie.
Sub-Saharan African countries lag significantly in revenue collections, with a median tax ratio of only 13 percent of GDP in 2022, compared with 18 percent in other emerging economies and developing countries and 27 percent in advanced economies.
“So, there are several reforms that need to be pursued. I think first and foremost, of course, is policies to strengthen the resilience of economies. So, in many countries, for example, there’s a big challenge in mobilizing more domestic revenues. That needs to be addressed wherever that’s the main challenge. Second, I think it’s also important to consider policies to insulate domestic economies from the external environment. So, allowing exchange rates to adjust, interest rates to be recalibrated, to reflect better to reduce inflation are all going to be a very important part of the policy response to this adverse external environment,” added Selassie.
The IMF has provided the region with around $50 billion in financing since the start of the pandemic and will continue to work with the region to put in place the right type of policies that are tailor-made to each country’s needs.
“We are engaging like never before with the region. Of course, over the last couple of years, we’ve provided considerable financing to the tune of around $50 billion to support the region. Whether the very difficult economic environment that was facing and we continue to try and provide as much financing as possible to support countries in the coming months. As important, however, of course, are policies and reforms that need to be pursued by countries, and we are deeply engaged with working with countries to navigate and to put in place the right types of policies in each country,” said Selassie
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