The International Monetary Fund has warned of “economic collapse” in many African economies as the impact of the Russian-Ukraine war has worsened with commodity price shocks and increased cost of living for hundreds of millions of people.
According to IMF Managing Director Kristalina Georgieva, inflation is now higher than expected. It has broadened beyond food and energy prices, prompting major central banks to announce further monetary tightening.
Spikes in food and energy prices are hitting many African countries particularly hard, and they may need more grants and highly concessional financing. Furthermore, the rising interest rates in leading economies could lead to widening spreads for African econ with weaker fundamentals, making it more costly for them to borrow.
In a report titled, ‘Facing a Darkening Economic Outlook: How the G20 Can Respond,’ the IMF said inflation, debt, and forex crisis is pushing African economies to the brink.
The report, released on Wednesday, is a backdrop to the meeting that G20 ministers and central bank governors will have in Bali later this week.
Commenting on the report, Georgieva said it will be a tough 2022—and possibly an even tougher 2023, with an increased risk of recession.
She stated, “The difficult conditions in many African countries at this moment are important to consider. In my meeting with Ministers of Finance and Central Bank Governors from the continent this week, many highlighted how the effects of this entirely exogenous shock were pushing their economies to the brink.
“That is why we need decisive action and strong international cooperation, led by the G20. Our new report to the G20 outlines policies that countries can use to navigate this sea of troubles.”
“The effect of higher food prices is being felt acutely as food accounts for a higher share of income. Inflation, fiscal, debt and balance of payments pressures are all intensifying. Most are now completely shut out from global financial markets and, unlike other regions, don’t have large domestic markets to turn to.
“Against this backdrop, they are calling on the international community to come up with bold measures to support their people. This is a call we need to heed.”
Actions taken by major economies were insufficient, as inflation is now higher than expected and has broadened beyond food and energy prices, prompting major central banks to announce further monetary tightening.
In effect, Georgieva stated that the IMF would downgrade its global growth projection for both 2022 and 2023 in its World Economic Outlook update later this month.