Global economy needs Africa to prosper, says IMF

Marrakech, Morocco|| The world economy would need Africa to achieve economic prosperity, particularly in the 21st century Kristalina Georgieva, Managing Director, International Monetary Fund (IMF) has said.

According to her, Africa has great potential, abundant resources, boundless creativity and energy, and is home to the world’s youngest and fastest-growing population, yet it has been badly hit by all the challenges the world faces today.

Georgieva highlighted these in her customary curtain raiser speech delivered in Côte d’Ivoire ahead of the 2023 annual meetings of the IMF and World Bank which officially begins in Marrakech, Morocco on Monday.

Biilled to host up to 15,000 attendees. including finance ministers and central bank governors from 190 countries, the week-long annual meetings would be the first in Africa in 50 years since the last one in Nairobi in 1973. It is coming just weeks after a terrible earthquake hit Morocco.

Georgieva said Africa makes the strongest case for building economic resilience in light of the COVID-19 pandemic, Russia’s war in Ukraine, climate disasters, cost-of-living crisis, political instability which had hit the world, but most fully on display in Africa.

“To put it simply, a prosperous world economy in the 21st century requires a prosperous Africa,” she stressed.

“Advanced economies are rapidly ageing, but they have abundant capital. The key will be to better connect that capital to Africa’s abundant human resources—to inject more dynamism into the current anemic global growth outlook,” she urged.

And according to her, a prosperous Africa requires maintaining the international cooperation, which she called “most important bridge of all”

The IMF boss further observed that though resilient, global economy is still challenged by weak growth and deepening divergence , as she noted resurging inflationary pressures and warned countries against premature easing of rates.

Read also: IMF teaches Central Banks on managing inflation expectations

She noted that the world economy has shown remarkable resilience, with the first half of 2023 bringing some good news, largely because of stronger-than-expected demand for services and tangible progress- but it is not yet time to “let our guard down.

Such slow and uneven growth outcomes is expected to be highlighted in the IMF World Economic Outlook (WEO) which when released on Tuesday would confirm global growth at well below the 3.8 percent average in the two decades before the pandemic, and looking ahead over the medium term, prospects have weakened further.

Already, the IMF estimates that the cumulative global output losses to successive shocks since 2020 have reached as high as $3.6 trillion as of 2023, though also unevenly distributed across countries.

This is driven by differences in policy space and macroeconomic fundamentals, in the extent of dependency on fuel and food imports, share of goods versus services in the economy, role of trade, reform momentum, and the pace of the fight against inflation.

On policies for stronger future growth, the fund believes that fighting inflation should be the number one priority as commodity prices for some countries are expected to be elevated all the way until 2025.

“Winning the fight against inflation requires interest rates to remain higher for longer. It is paramount to avoid a premature easing of policy, given the risk of resurging inflation.”

On the fiscal side, there are even more significant risks which would require vital investments, and entails for countries to rebuild their budgetary room for maneuver. This means tighter fiscal policy and support for monetary policy especially where inflation pressures are still strong.

Many countries also need to generate higher and more reliable domestic revenue, she further observed.

Lamenting heightened stakes due to how shocks of the past few years have elevated debt burdens in many countries, including in Africa, where most economies have little or no fiscal space left, with rising debt servicing costs, she said many governments are facing tough decisions.

“This means prioritizing spending and communicating clear medium-term fiscal plans to build credibility and reduce debt levels,” the IMF urged, while commending some African countries especially Nigeria
for reforming energy subsidies to create space for development spending.

“Nigeria, for example, recently removed fuel subsidies that cost about $10 billion last year—four times the amount spent on health,” she noted.

Beyound this, the second policy priority, according to her is laying the foundations for inclusive, sustainable growth through transformational reforms and building strong state institutions.

She put the reforms required to realize the full potential of the African Continental Free Trade Area (AfCFTA) in this category, while noting trade barriers and improving the broader trade environment as critical in pushing per capita income of the median African country up by more than 10 percent.

She was of the view that fully implemented, AfCFTA would help the continent transform itself into the world’s largest free-trade area—delivering a big lift to living standards.

The third policy priority, she listed, includes boosting collective resilience through international cooperation.

Georgieva said: “At the very time when we need it most, cooperation is weakening. The bridges that connect countries are corroding as trade and investment barriers are rising.

“A fragmented world is especially challenging for emerging and developing countries, because of their greater reliance on trade and their more limited policy space.

“Compared with other regions, the African continent stands to suffer the biggest economic losses from severe fragmentation.
This is a challenge we must confront together.

“In no other area is the need for international cooperation as evident as in addressing the existential threat of climate change. The world has a responsibility to stand with vulnerable countries as they deal with shocks they have not caused.”