The International Monetary Fund (IMF) has stated that financing conditions for sub-Saharan African economies are expected to remain tough for a period together with ongoing capital outflows from the region.
The Director of African Department at the Fund, Abebe Selassie told reporters that inflow of foreign capital remained thinned and the pressure on exchange rate is a testament to the difficult finance terrain across the world.
He stated, “Global financing conditions, even if they’ve eased a little bit, remained fairly difficult for most countries as evidenced by continued pressure on foreign exchange rates for example.
“Capital flows also remain attenuated, notwithstanding Cote D’Ivoire’s recent issuance a couple of weeks ago.’’
Debt levels and investments
Selassie also made favorable forecast on economies of the SSA with relation to debt levels and increase in domestic and foreign investment. He explained that public debt has stabilised at around 60% following a decade of sporadic growth.
According to him, “Also encouraging is that we see both domestic and foreign investment picking up through 2023, which bodes well for activity in 2024,’’
“On the policy side, also, we have seen governments making a strenuous effort to stabilize public debt, and our estimates now suggest that public debt will have stabilized at around the 60% mark following about a decade of sustained increase in public debt levels.”
Across Europe and the United States, it is projected that Central banks will tighten monetary policy as a measure to rein in on inflation.
The U.S. Federal Reserve and other central banks worldwide are resisting projections of imminent interest rate cuts, thus maintaining robust dollar inflows. Consequently, Africa, along with other emerging markets, has experienced significant outflows, with many countries finding it challenging to access global capital markets.
The IMF has labelled this phenomenon a “funding squeeze.”
Last month, the U.S Federal Reserve disappointed analyst by keeping interest rate unchanged and signalling it is not ready to start rate cuts for the year with inflation still above the Central bank’s target.
The increase in interest rate across the West in 2023 as a measure to tame the lingering post covid-19 inflation pushed public debt in the SSA to its highest levels in over a decade. A report by risk consultancy firm Verisk Maplecroft stated that public debt now stands at 77% of GDP on the average in Ghana, Nigeria, Ethiopia, Kenya, Mozambique and Zambia.
This article was initially published in Nairametrics