IMF claims that Africa is living on the edge

Sub-Saharan Africa (SSA) is currently being referred to as a region that is “living on the edge” by the International Monetary Fund (IMF). This is revealed in its yesterday-released regional economic outlook.

The Fund stated that similar to other regions, the outlook for the region is incredibly unpredictable as long as geopolitical unrest, monetary tightening, and the food price crises persist.

Four policy focus areas are identified in the report as many nations look towards solutions to the economic dilemma. In addition to addressing food insecurity, managing the change in monetary policies, consolidating aging public finances, and laying the groundwork for sustainable/greener growth, it urged African states to do so.

The IMF estimates that the region’s debt as a percentage of GDP will be 24.1% this year and 23.8% the next year. The percentage increased to 22.8 percent in 2019 and 26.5 percent in 2020 as a result of the COVID-19 upheaval from its average of 15.3 percent from 2010 to 2018.

The ratio reached a final value of 24.6% last year. At 9.1%, Nigeria’s debt to GDP is among the lowest in the area. The percentage was 3.1% from 2010 to 2018.

The government debt to GDP for the nation, however, is projected to increase to 38.6% from 37.3% this year. Nigeria’s government debt as a percentage of GDP was 36.6% in 2017, compared to an SSA-wide figure of 57%, which is predicted to drop to 53.7% in 2018.

The ratio of Nigeria’s sovereign debt to GDP is increasing while it is decreasing for the rest of Africa. In addition, the IMF expects Nigeria’s fiscal deficit to GDP to reach 6.2 percent this year (higher than the SSA’s average prediction of 4.5 percent) and then decline to 5.8 percent the following year.

Compared to the three percent average from 2010 to 2018, the percentage last year was six percent.

“On public debt, regional indebtedness is now approaching levels last seen in the early 2000s before the impact of the Heavily Indebted Poor Countries Initiative, though with a different composition. The substitution of low-cost, long-term multilateral debt with higher-cost private funds has resulted in rising debt-service costs and higher rollover risks.

“Nineteen of the region’s 35 low-income countries are in debt distress or at high risk of distress. Out of the other ten countries of the region, three have faced spreads of more than 1,000 basis points at some point over the past six months (Angola, Gabon, Nigeria),” the report states.

It notes that the price crisis in the region continues to mirror worldwide trends “where inflation has increased more rapidly and more persistently than expected, and where incomes have been squeezed by hikes in the cost of living.

“Recent inflation increases may appear less striking relative to historical averages for sub-Saharan Africa, especially for countries with fixed exchange rates, but much of the recent movement has been driven by essential food and energy items, which are imported in many countries and average 50 per cent of the region’s consumption.”

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