Decoding the IMF-Africa fiscal picture

The recent IMF/World Bank Spring meetings in Washington have shone a spotlight on the fiscal challenges facing Sub-Saharan Africa. The International Monetary Fund (IMF) projects a deceleration in growth for the region to 2.6% this year, down from 3.9% last year. Additionally, a funding squeeze is expected to hit debt-stricken countries amid higher borrowing costs and inflation. Tatonga Rusike, an Economist at the Bank of America Sub-Saharan Africa, shares insights from the meetings and sheds light on the current economic landscape. Developing countries in the region are facing a shortage of financing compared to pre-pandemic times, with reduced access to sources such as official lending from institutions like the IMF and World Bank, bilateral lenders like China, and the issuance of euro bonds in the market. The tightening financing conditions, including interest rate hikes over the past year, have made it challenging for nations to raise capital. This funding squeeze presents a significant hurdle for many Sub-Saharan African countries. Countries like Ghana and Zambia, which have defaulted on their debt in recent years, are undergoing debt restructuring processes. The common framework for debt treatment aims to facilitate negotiations with official and private creditors to alleviate debt distress. However, progress has been slow, particularly with official creditors like China. Ghana is working towards securing financing assurances to proceed with IMF board approval, while Zambia is facing delays in negotiations despite being in an IMF program. Beyond countries already in distress, others like Kenya and Nigeria are at risk of experiencing similar challenges and must make necessary adjustments to prevent escalating debt burdens. Amidst the gloomy fiscal outlook, some bright spots offer a glimmer of hope for Sub-Saharan Africa. Angola stands out with positive credit outlooks from agencies like Fitch and Moody's, driven by higher oil prices, fiscal surpluses, and steady growth. Moreover, upcoming policy adjustments in Nigeria and adequate financing for Kenya could help mitigate potential financial strains. Notably, South Africa faces near-zero growth this year, with ongoing fiscal and power challenges. Despite the bleak economic forecast, credit rating agencies view the risks at current levels, providing some stability. Investment in the electricity sector is expected to yield benefits in the coming years, with projections of improved growth in 2023. Private sector involvement could play a pivotal role in addressing power shortages and stimulating economic activity. Looking ahead, navigating the fiscal hurdles plaguing Sub-Saharan Africa requires concerted efforts in debt restructuring, financial management, and strategic investments to drive sustainable growth and financial stability.