. Says global monetary policy has raised borrowing costs for SSA countries
By Clara Nwachukwu, Washington DC
The International Monetary Fund (IMF), has said it will support policies geared toard economic diversification especially in the areas of health, education, and infrastructure development.
It however noted that the ultimate decision on how to respond to these areas lies squarely with the government and its agencies, while the IMF will only support with number on the best global practices.
The Director, IMF’s African Department, Abebe Selassie, said this while fielding questions from journalists after the presentation the latest International Monetary Fund (IMF) Regional Economic Outlook for SSA: “The Big Funding Squeeze” on Friday at the IMF/World Bank Group 2023 Spring Meetings in Washington DC.
Selassie said: “We will be supportive of measures, policies that respond and are effective, in terms of addressing the diversification objective Nigeria has, and addressing the near-term challenges that macro-economically the country is facing from revenue mobilization to ensuring that there are sufficient resources to spend on health, education, and infrastructure.”
Responding to the issue of trade protectionism alluded to by the World Bank, Selassie said: “I think a source of frustration for the Government itself, policymakers, and businesses over the last several years has been that the trade regime, and the foreign exchange regime, have all been very challenging. They have not allowed Nigeria to robust the very strong rates of growth that the country needs desperately.
“Second, I think it’s appropriate that you look at policies in terms of their effectiveness, so the question that we have is the policies that have been pursued over the last three, four years, have they indeed helped achieve the diversification that it was intended to achieve.”
In terms of debt sustainability, the IMF Regional Director, said “… when we make an assessment and we classify countries as being a moderate risk or a high risks, or we talk about vulnerabilities being elevated. It takes into account, what we think about the kind of policies that the government is going to pursue; and, of course, certain assumptions about the global environment.”
He noted that recent global shocks have “made countries’ ability, to bring debt under a sustainable trajectory more difficult.”
In the case of Nigeria, he said: “the future trajectory of its economy is going to depend on a whole host of variables – the reforms that the government pursues, how effectively it uses the resources it has, and the oil price trajectory. It is a combination of these factors that will determine the sustainability of Nigeria’s debt.”
In the case of Nigeria, the future trajectory of its economy is going to depend on a whole host of variables – the reforms that the government pursues, how effectively it uses the resources it has, and the oil price trajectory. It is a combination of these factors that will determine the sustainability of Nigeria’s debt.
Sub-Saharan Africa economy
Regarding Sub-Saharan Africa’s (SSA) economic growth projected to drop to 3.6% in the Regional Outlook, Selassie noted that some countries, particularly those in the East Africa, or non-oil resource-rich are expected to fare better.
This is the second consecutive year that SSA records a lower rate of growth than the previous year’s, even as it is expected to rebound to 4.2 per cent in 2024, in line with global recovery, subsiding inflation, and a winding down in monetary policy tightening.
Selassie said the report showed that public debt and inflation are at levels not seen in decades, with double-digit inflation prevailing in half of the countries, which eroded household purchasing power and struck at the most vulnerable.
“The rapid tightening of global monetary policy has raised borrowing costs for SSA countries both on domestic and international markets. All Sub-Saharan African frontier markets have been cut off from market access since spring 2022.”
He said the US dollar effective exchange rate reached a 20-year high last year, increasing the burden of dollar-denominated debt service payments, while interest payment as a share of revenue has doubled for the average SSA country over the past decade.
“With shrinking aid budgets and reduced inflows from partners, this is leading to a big funding squeeze for the region… This is coupled with a long-term decline in aid and a more recent fall in investment from partners.
“This means that there is less money to be spent on vital services like health, education, and infrastructure. If measures are not taken, this funding squeeze will hamper Sub-Saharan’s efforts to build a skilled and educated population and to be the driving force of the global economy in years to come.”
Selassie added that since Russia’s invasion of Ukraine, the cost of living has become more expensive, borrowing costs increased, and access to cheaper funding is dwindling.
Amid all of these, he said the IMF continues to play its role and stands ready to support its members, adding that between 2020 and 2022, the Fund provided over $50 billion through programmes, emergency financing, and Special Drawing Rights allocation.
“In just two years, the IMF provided more than twice the amount disbursed in any 10-year period since the 1990s.
“As of last month, we had lending arrangements with 21 countries, with more programme requests under consideration,” he said.
