The International Monetary Fund has warned that the war in Ukraine will slow growth for countries in sub-Saharan Africa.
IMF’s latest Regional Economic Outlook for the region, released Thursday, said growth is expected to slow to 3.8% this year from last year’s better-than-expected rate of 4.5%. According to Abebe Aemro Selassie, director of IMF’s African department, the war is yet another severe shock that has left African policymakers with — in the words of the new report — “little room to maneuver.”
At the beginning of the year, sub-Saharan African countries were seemingly beginning to recover from the difficult economic conditions they had encountered from 2020-2021, but most nations in the region are now facing a major setback because of the war, which has upended global commodity markets, Selassie said during a press briefing Thursday.
Half of the region’s low-income countries are already in or at high risk of distress. Food prices — which account for about 40% of consumer spending in sub-Saharan Africa — are rising rapidly, and higher oil prices will boost the import bill for the region’s oil importers by almost $19 billion, worsening trade imbalances and raising transport and other consumer costs, according to the outlook.
According to Selassie, growth is only expected to pick up to around 4% in 2023, which is not enough to help countries recover lost ground from the effects of the COVID-19 pandemic.
“It also makes the task of creating jobs, fighting climate change, and achieving the Sustainable Development Goals that much harder to achieve,” he said.
Against this backdrop, leaders in sub-Saharan Africa are facing extremely difficult economic policymaking conditions, with rising concessional financing needs and heightened risks, Selassie said. Authorities must shield vulnerable households from rising food and energy prices, he added, but doing so without debt vulnerabilities will require tough policy trade-offs.
The shock is set to make an already delicate fiscal balancing act more difficult and “will be quite consequential for the most vulnerable countries and the most vulnerable people,” Selassie said. He added that countries need a careful policy response to address these challenges and suggested that policymakers use direct transfers to protect vulnerable households — and those that can’t provide targeted transfers could use temporary subsidies or targeted tax reductions.
In addition to the negative impacts of the war in Ukraine, the region is vulnerable to new waves of COVID-19 due to low vaccination rates, as well as an acceleration of monetary tightening in advanced economies, deterioration of the security situation in several countries, and climate-related shocks.