IMF: SSA stands to lose the most in a severely fragmented world

The International Monetary Fund has released its Regional Economic Outlook for Africa, forecasting a decline in growth for sub-Saharan Africa to 3.6% this year. The report highlights that the region is facing significant challenges, particularly under a severe geoeconomic fragmentation scenario. Catherine Pattillo, Deputy Director of the African Department at the International Monetary Fund, recently discussed the details of the report in an interview on CNBC Africa. One of the key points highlighted in the report is the second consecutive year of declining growth in the region. This decline is attributed to a funding squeeze, including a reduction in aid and limited access to private finance. Slowing global economic activity has also impacted demand for the region's exports, further contributing to the low growth projection. While some countries in the region are experiencing growth, others like South Africa are forecasted to have minimal growth due to factors like the energy crisis. Additionally, the interview touched on the importance of regional integration, particularly through initiatives like the Africa Continental Free Trade Area (AfCFTA). The AfCFTA presents an opportunity for increased regional trade and integration, with the potential to boost trade within Africa by 53% and globally by 15%. This integration could enhance resilience, diversify export and import sources, and foster cross-border production linkages in sectors like agribusiness and manufacturing. Pattillo also addressed the funding challenges faced by African countries amidst the current economic climate. While there are no new Special Drawing Rights (SDR) allocations in the pipeline, efforts are being made to ensure that existing resources benefit vulnerable countries. Suggestions include channeling SDRs to facilities that provide concessional financing for low-income countries and support for climate action. Furthermore, the discussion emphasized the importance of building strategic economic partnerships in Africa, especially in the face of increased global fragmentation. The report suggests that Sub-Saharan Africa could lose up to 4% of GDP in a severely fragmented world, highlighting the risks associated with isolation. However, there are also opportunities for countries to explore new markets and investment avenues by focusing on education, infrastructure, and business environments. In terms of borrowing costs and exchange rate pressures, the outlook remains challenging for African sovereigns. High borrowing costs and volatile global markets have impacted the region, leading to limited access to international funding sources. While the Eurobond markets are expected to remain closed to African issuers this year, there is optimism for a potential reopening in 2024. In the meantime, governments are advised to explore alternative funding sources such as syndicated loans and domestic markets. In conclusion, the IMF's regional economic outlook underscores the need for African countries to adapt to a more uncertain global financial environment. By enhancing monetary and fiscal policy frameworks, building resilience, and exploring new economic partnerships, Sub-Saharan Africa can navigate the challenges posed by fragmentation and emerge stronger in the face of adversity.