The International Monetary Fund (IMF) has warned that countries from the Sub-Saharan Africa (SSA) region are facing a “big funding squeeze,” which is forcing some of them to cut spending on health, education, and infrastructure. The region is being spurred by shrinking aid budgets and reduced inflows from partners. Without this funding, countries from the region will be forced to cut spending on vital services, thus holding the region back from developing its true potential. The IMF has said that countries from the SSA region should also consider having in place “a well-functioning debt-resolution framework.”
Abebe Aemro Selassie, the lender’s director of the African department, claimed that people from SSA regions are already starting to feel the effects of this crisis. “People in sub-Saharan Africa are feeling the effects of a funding crisis. Since Russia’s invasion of Ukraine, [the] cost of living is more expensive, borrowing costs have increased, and access to cheaper funding is dwindling. 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,” Selassie argues.
Selassie also warned that unless measures are taken to mitigate these risks, the region’s goal of becoming the “driving force of the global economy in years to come” will be hampered. In its April 14 press release, the IMF said it had already provided more than $50 billion to countries within SSA between the years 2020 and 2022. The lender also revealed that it had “lending arrangements with 21 countries,” while more requests for such programs are said to be under consideration.
Besides waiting for a financial bailout, the IMF said countries from the SSA region should also consider having in place “a well-functioning debt-resolution framework.” Countries should also consider allowing their respective exchange rates to depreciate. “[A final priority] is ensuring that important efforts to tackle climate change do not crowd out basic needs, like health and education. Climate finance provided by the international community must come on top of current aid flows,” the IMF added.
The IMF’s warning comes as countries in the SSA region continue to struggle with the economic impact of the COVID-19 pandemic. The region’s economy is expected to grow by only 3.4% in 2021, according to the IMF’s latest World Economic Outlook report. This is well below the global average of 6%.
In conclusion, the funding squeeze faced by countries in the SSA region is a cause for concern. The IMF’s warning highlights the need for countries to have a well-functioning debt-resolution framework in place and to consider allowing their respective exchange rates to depreciate. Failure to take these measures could hamper the region’s goal of becoming the driving force of the global economy in years to come.
