African economies: more debt, harder!

Successive shocks have weakened the recovery in Africa’s economies. Disruptions in international trade and supply chains, exacerbated by the war in Ukraine and the inflation shock (13.5% on average in 2022), are leading to a change in the growth profile almost everywhere. The continent’s GDP will increase by 4.1% in 2022, according to AfDB forecasts. Morocco is credited at 1.8% against a regional average of 4.5%. With very tight fiscal deadlines in some countries, spending pressure remains high. In addition, the economic situation will have effects on poverty, especially on vulnerable households living on the margins.

The Russia-Ukrainian conflict could take place thousands of kilometers from Africa, but it is already having serious consequences on economies still recovering from the Covid shock. On the sideline of the African Development Bank’s (AfDB) annual meeting in Accra, bank economists painted a mixed picture on the economic outlook.

Disruptions in international trade and supply chains, exacerbated by the war in Ukraine and the inflation shock, are leading to a revised growth profile across the board. African gross domestic product will increase by 4.1% in 2022 after 6.9% in 2021 and a recession of 1.6% in 2020. East, Central and North Africa are on the podium of the most dynamic regions with above-average growth.

This was pulled down by Southern Africa which was credited with 2.5%. This overview, however, covers extreme differences within regions, with the economic situation affecting countries differently, depending on whether they are net importers or exporters.

Located in the first category, Morocco is one of the most affected by the war in Ukraine and inflation is coming off its hinges. AfDB has aligned itself in the high range of government forecasts by counting on a 1.8% increase in GDP in 2022 against a regional average of 4.5%.

Beware of flaws of payment
Many countries in Africa have entered this new crisis with budget cuts severely affected by the pandemic. Spending pressure remains high in the face of rising inflation. On average, it will stand at 13.5% in 2022.

“Weak populations, especially in urban areas, will bear the brunt of rising food and energy prices. And in the absence of measures to mitigate this impact, this increase could provoke popular discontent across the continent, ”AfDB economists warn.

Budget pressure will also come from the normalization of monetary policies in advanced countries. This restriction, combined with growing pressure on the currencies of many countries, is likely to exacerbate debt vulnerabilities.

In the short to medium term, Africa’s debt will remain above pre-pandemic levels, according to forecasts. Between 2020 and 2022, the additional resources needed to deal with the successive shock are estimated at $ 432 billion. “The context may call for a rethinking of the global policy response, including the restoration of the debt service suspension framework, to help indebted countries address new debt-related challenges.

“The new initiative should provide incentives to attract the participation of commercial lenders, who until now have been reluctant to interact with their borrowers,” economists advise. Prior to Russia’s invasion of Ukraine, 16 African countries were at high risk of debt distress and 7 were in debt.

Ten years to reach the expected extreme level of poverty before the pandemic
Despite the rebound in growth in 2021, an additional 28.7 million Africans fell into extreme poverty compared to pre-Covid projections. They could reach 30 million in 2022 and 2023. The new shock to the economies will have effects on poverty, especially on vulnerable households already living on the brink of poverty.

“If the Russia-Ukrainian crisis continues, approximately 1.8 million and 2.1 million additional Africans could fall into extreme poverty in 2022 and 2023”.

The impact of the Russia-Ukrainian conflict on poverty varies from one country to another. Overall and based on current growth forecasts, “African economies will need more than a decade to catch up with the poverty rates expected before the Covid-19 pandemic, given real GDP growth per capita. remains insufficient to offset the economic impact of the pandemic, “AfDB said.

Franck Fagnon / ECO Inspirations

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