Sub-Saharan Africa needs policies to address new economic shock — IMF

The International Monetary Fund (IMF), has said the Sub-Saharan African Region needs a careful policy response to address the challenges of the new economic shock caused by the war in Ukraine.

Mr Abebe Selassie, Director, African Department, IMF, said this at a news Conference on the Sub-Saharan Regional Economic Outlook.

The meeting was held virtually on Thursday as part of the 2022 IMF Spring Meetings in Washington DC.

Selassie said that the war had resulted in raises in food and fuel costs on the African continent which had left policymakers with little room to maneuver.

“A promising regional recovery has been disrupted by the war in Ukraine. The recovery in sub-Saharan Africa picked up in the third quarter of 2021 and held up in spite of the onset of a fourth COVID-19 wave at the end of the year.

“Tragically, however, this progress has been offset by recent events. The Russian invasion of Ukraine has triggered a sharp rise in commodity prices.

“Straining the fiscal and external balances of commodity-importing countries and increasing food-security concerns across the region.

“As a result, economic activity is expected to slow to 3.8 per cent this year and is subject to an extraordinary range of risks.

“The new crisis comes on top of an already-protracted pandemic, and prospects for borrowing costs and global demand are increasingly uncertain.”

He said this had presented policymakers with a challenging and complicated policy outlook, one with rising needs, greater risks, and fewer options.

Speaking on economic policy, the director said governments would face three immediate challenges over the short run.

Selassie said the first challenge for the government in the region would be shielding their most vulnerable households without undermining debt sustainability.

The second and third challenges he said would be to contain inflation without undermining the recovery.

According to him, many countries will need to address exchange rate pressures stemming from higher global interest rates and increased uncertainty.

“Fiscal policy needs to protect vulnerable households from rising food and energy prices, without adding to debt vulnerabilities. Targeted transfers to vulnerable households are the first-best response.

“But targeted tax reductions or price subsidies both with clear sunset clauses may be a second-best alternative, especially for countries with weak social safety nets.

“For those countries with tighter fiscal constraints, finding the resources to protect the vulnerable may require a re-prioritization of spending. Improving access to finance for farmers and small businesses would also help.”

He said that authorities should carefully monitor inflation and be prepared to raise interest rates, if necessary while maintaining credible and clearly communicated policy frameworks.

The director said that continued international solidarity and cooperation will remain vital, stating that the IMF was always ready to help the region.

Looking beyond the pandemic and current geo-political tensions, Selassie, said that creating jobs and meeting the Sustainable Development Goals (SDGs) would require strong, inclusive, and sustainable growth in sub-Saharan Africa.

To this end, he said decisive policy action was needed to enhance economic diversification, promote regional integration, unleash the private sector’s potential, and address the challenges posed by climate change.

“Climate change, given sub-Saharan Africa’s exposure to weather-related disasters and reliance on rain-fed agriculture, means that investment in adaptation is critical.

“The global green transition also provides new opportunities in light of the region’s vast potential for renewable energy.

“International financial support will still be critical to help finance the cost of adaptation, enable sub-Saharan Africa to seize the opportunities offered by the transition to a greener economy, and to ensure fair and affordable access to energy.”

According to him, these measures may not be easy, but they are essential if the region and the world are to benefit from the long-promised African century.