BoG Governor warns of global economic risks to Sub-Saharan Africa
The faltering growth in major economies such as China and the United States presents significant risks to the economic rebound of Sub-Sahara Africa (SSA), Governor of the Bank of Ghana, Dr Ernest Addison, has said.
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He said the faltering growth in these economies would lead to weak external demand for SSA exports and lower remittance flows, making it difficult to rebuild FX reserve buffers.
In a keynote address, read on his behalf at the opening of a regional course on Financial Programming and Policies in Accra, he said elevated geopolitical risk, especially in the Middle East, could also disrupt oil production and push up oil prices; worsen FX buffers for oil importers such as Ghana; and cause disorderly movements in exchange rate with implications for inflation.
The regional course was organised by the West Africa Institute for Financial and Economic Management (WAIFEM) in partnership with the International Monetary Fund (IMF).
Dr Addison said the rise in coups, terrorist attacks and armed conflict in the region would also complicate Foreign Direct Investment flows to the region.
Against this backdrop, he said it was now increasingly clear that some form of policy adjustments would be necessary to rebuild fiscal buffers and avoid a systemic debt crisis.
“The natural question, which I believe your facilitators will be discussing as part of this course, is: How should countries in the sub-region proceed with the rebuilding of fiscal buffers without jeopardising growth and the well-being of the vulnerable in society,” he stated.
Path to recovery
The IMF in its Regional Economic Outlook (April 2024) noted that Sub-Saharan Africa, after four years of economic turbulence, appeared to be on a path of recovery.
With the easing of global financial conditions, Cote d'Ivoire, Benin, and Kenya issued bonds earlier this year, thus, ending a two-year suspension from international markets for the region.
Meanwhile, public debt ratios have stabilised, and some capital flows to the region have resumed. Furthermore, according to the IMF, the outlook was gradually improving, with growth in the region expected to rise from 3.4 per cent in 2023 to 3.7 per cent in 2024, with nearly two-thirds of countries anticipating higher growth.
Economic recovery is expected to linger beyond this year, with a projected growth rate of 4.1 per cent in 2025. Similarly, median inflation has almost halved from nearly 10 per cent in November 2022 to about six per cent in February 2024.
Funding squeeze
Dr Addison said, however, not all was rosy for the region as the funding squeeze continued, with huge debt repayments looming this year and the next few years.
He said concessional sources had become limited, governments were seeking alternative financing options, usually associated with higher costs and shorter maturities.
“The squeeze in funding partly indicates a decline in the region’s traditional funding sources, particularly Official Development Assistance (ODA),” he said.
The IMF estimates the gross financing needs for low-income countries in Sub-Saharan Africa to exceed $70 billion annually (six per cent of GDP) over the next four years.
IMF support
The Director General of WAIFEM, Dr Baba Musa, in his welcome address, said over the past two decades, WAIFEM had been fortunate to receive support from the IMF for its capacity-building activities.
He said through the capacity-building initiatives and knowledge exchange programmes, WAIFEM had witnessed improvements in the skills and competencies of professionals working in macro-fiscal, financial, and debt management policies within the sub-region.
“The IMF’s expertise and guidance have been invaluable in advancing our shared economic stability and growth goals,” he said.
He said WAIFEM remained committed to strengthening this invaluable partnership as they looked to the future.