IMF’s Africa chief warns of economic ‘dark period’ without more aid

The International Monetary Fund’s director for the African Department warned of a “dark period” for the continent amid global economic woes and chastised donor nations for being “shortsighted,” adding that a failure to support lower-income countries in trouble now will have ripple effects into the future.

“It’s really, really important to help countries not have a deeper crisis,” Abebe Aemro Selassie told Devex in an interview at his office at the IMF headquarters as World Bank and IMF annual meetings got underway.

The IMF’s latest economic outlook for sub-Saharan Africa, published Friday, shows that the region faces uncertainty as countries’ attempts to bounce back from the COVID-19 pandemic have been stymied by the war in Ukraine, rising food insecurity, energy inflation, and global monetary policy causing debt burdens to become ever more unmanageable.

“Against this backdrop, and with limited options, many countries find themselves pushed closer to the edge,” the report says.

Meanwhile, official overseas development aid has declined from 4.5% in the 1990s to less than 3% when measured as a fraction of the recipient country’s GDP, the report says. While this reflects economic growth in Africa, it also signals a proportional decline in support, with the goal of donor countries hitting 0.7% of their GDP in aid quickly fading from becoming a norm.

“It’s crazy that in the continent that will be the biggest source of population growth, the biggest source of new entrants to the labor force, that more is not being done to support human capital development, infrastructure development,” said Selassie, who is from Ethiopia and once worked for its government.. “All the more so given all the headwinds from things like climate change, things to which African countries had zero contribution.”

Recently back from a trip to West Africa, he said he is hearing from African leaders about the need for an “international social contract,” in which the people least responsible for global crises — whether climate change or the war in Ukraine — are better protected from their consequences, including food price shocks.

For now, African nations face the predicament of having to borrow more in order to keep their citizens from going hungry. This is adding to debt at a time of worsening debt servicing costs. The IMF recently created a food price shock emergency lending window in which low-income countries can borrow at concessional rates.

“The alternative for countries is to either use this zero interest rate loan or to go out and borrow at more expensive rates still,” Selassie said. That is, if they can even borrow from global investors, as many governments are shut out of international markets at the moment.

“This is an important safety net when other resources are not available,” he says of the new financing window. He notes that grants are “scarce” these days, and low-income governments have to make sure people do not go hungry.

The challenge for governments is managing the immediate food security crisis with tightening monetary conditions, while trying to also set the stage for green growth into the future, so that they can recover a stronger growth trajectory. For many politicians, this will mean having to better manage public spending, to improve efficiency, and to ensure support is targeted at those in need.

For countries that borrowed in U.S. dollars, times are especially tough, with the U.S. greenback at multi-year highs against many currencies. Selassie said this is expected in times of global uncertainty, but that does not make it any less painful for low-income nations who are struggling to cope with headwinds coming from abroad.

“Dollar strength is a function of tighter monetary policy conditions in the US,” he said. The dollar also pushes up further already high food and fuel prices, as these are commodities traded on global markets.

The immense challenges are coming on top of major setbacks in recent years.

“We have to recognize that the fallout from the pandemic really delayed development progress quite significantly, and even exacerbated poverty. People are falling behind,” Selassie stressed.

He worries that the long-term impacts of the current moment could be severe, even multigenerational. If children drop out of school to help their families survive, they tend to never return, hurting earnings over their lifetime — and possibly even their own children’s wellbeing. IMF is stressing that support to the most vulnerable households right now is vital.

The multiple crises hitting the world’s poor are also threatening the climate agenda, as governments shift to more short-term needs, including threats of social unrest stemming from economic strife.

Selassie said the new Resilience and Sustainability Trust that the IMF put into motion this year is designed to give governments some “breathing space” by offering budget support for long-term projects, including those that will help with adaptation to climate change. Part of the goal is to create projects that crowd-in additional private capital.  

The RST was created out of last year’s $650 billion issuance of new Special Drawing Rights. More than 10 countries have started to transfer their excess SDRs to the fund, which is the IMF’s first foray into long-term development-style finance. Rwanda recently became the first African country to reach a deal on tapping the RST.

Some African governments have complained that the RST is hard to access and that getting the funds may take many months, when a crisis is hitting now. Still, it represents some reallocation of resources from wealthy nations to those in need.

Selassie said this is key because many African countries just need support to get through the current polycrisis and come out on the other side poised for high growth.  

“Don’t underestimate the resilience of the people,” he said.