News IMF forecasts sluggish recovery for sub-Saharan economies, warns of imminent social unrest
October 26, 2024
Lender estimates 2025 Ethiopia GDP growth at 6.5pct
Sub-Saharan African economies struggling with weak macroeconomic fundamentals and sensitive to economic shocks are likely to face social unrest and coup attempts in the coming year, according to the IMF sub-Saharan Outlook report published on October 25, 2024.
“Key drivers of social unrest and coups include structural factors: poverty, low inclusion, limited access to basic services, perceptions of corruption, weak governance, a young population, digital and social media penetration, and high security risks,” it reads.
The report identifies high inflation rates, disease outbreaks, market volatility, climate change, armed conflict, and economic slowdowns in large economies such as China, and a recent history of unrest as likely to add to the likelihood of social unrest.
The IMF foresees sluggish recovery for sub-Saharan economies, projected to pick up modestly to a 4.2 percent average in 2025.
“This is not sufficient to recover from the lost ground in recent years. Still far from the six percent growth the region enjoyed a decade ago. The political and social environment is difficult this time, under which the region’s governments are trying to implement reforms,” said Abebe Aemro Selassie, director of the IMF African Department, during a briefing on Friday.
“Making reforms acceptable requires good communication, good governance, and confidence-building. Since 2020, we have provided funding to the tune of 20 billion dollars to support reforms in the region,” he said.
The report warns that the conflict in Sudan could result in significant disruptions in the neighboring Central African Republic, Chad, Eritrea, Ethiopia, and South Sudan, as the fighting spurs the outflow of refugees and disrupts trade routes.
Conflict in Ukraine and the Middle East could also contribute to a rise in the prices of commodities such as fertilizers and fuel, according to the report.
The IMF characterizes half of the countries in the region as exhibiting high macroeconomic imbalances.
“In much of the region, the fight to stabilize prices is not over, public finances are not yet on a solid footing, and foreign exchange reserve buffers are often insufficient. Inflation is still in double digits in almost one-third of countries, including Angola, Ethiopia, and Nigeria,” the report reads.
It indicates that interest payments exceed 20 percent of state revenues in almost a quarter of all sub-Saharan countries, while a third hold reserves insufficient to cover more than three months of imports.
“These reserve levels are insufficient to provide adequate buffers against future shocks. Concerns about potential overvaluation and competitiveness persist in much of the region,” it reads.
The organization warns that policy adjustments aimed at improving macroeconomic stability, such as increases in taxes or reductions in subsidies to contain fiscal deficits, can increase the risk of social discontent.
The Ethiopian government has recently introduced value added tax (VAT) on financial and telecoms services, as well as revealed plans for another round of quarterly cutbacks on fuel subsidies.
The IMF forecasts Ethiopia’s GDP will grow by 6.5 percent in 2025, while inflation is expected to drop to 23.3 percent from the current 24 percent, according to the report.
The figures contradict a recent government statement which claims that headline inflation has cooled to below 20 percent.
The IMF board recently approved the first review of Ethiopia’s USD 3.4 billion lending program, greenlighting a USD 340 million disbursement.
The Washington-based lender foresees inflation will continue on a downward trajectory throughout the region.
“In the face of popular frustration, there is also an opportunity to work to mobilize support for large, deep reforms, of the sort that, for instance, Ethiopia, Ghana, Kenya, and Nigeria are pursuing. Realizing this opportunity requires rethinking reform strategies, to build and maintain pro-growth coalitions among constituent leaders and the general public,” reads the report.
Nonetheless, the IMF says income per capita growth, at less than 2 percent, will remain insufficient to support meaningful and rapid growth in living standards, continued reductions in poverty, or convergence toward incomes in the rest of the world.
“Due to declining overseas development assistance, difficult market conditions and other factors, countries continue to face a difficult funding environment. Much work remains to be done by policymakers, financers, and actors. But we remain hopeful of the region,” said Abebe.