The International Monetary Fund (IMF) on Thursday said sub‑Saharan Africa will need additional external funding of around $425 billion over the next five years.
The additional funding will help boost spending on the pandemic response, to maintain adequate reserves, and to accelerate the recovery to where the income gap with the rest of the world is closing rather than getting wider.
An SDR allocation by the IMF would be an important step, providing liquidity to most vulnerable sub-Saharan African countries.
However, meeting the region’s total needs will require significant contributions from all potential sources: private capital inflows; international financial institutions; debt-neutral support via Official Development Assistance (ODA); debt relief; and capacity development to help countries effectively scale up development spending.
“We will discuss these issues at the forthcoming High-Level International Summit on Financing for Africa in May,” Abebe Aemro Selassie, director, African Department, IMF, said during press briefing on regional Economic Outlook, at the IMF/World Bank Spring meetings in Washington D.C.
Along with the international community, the IMF moved swiftly to help cover some of the region’s emergency funding requirements. This included support via its emergency financing facilities, increased access under existing arrangements, and debt relief for the most vulnerable countries through the CCRT.
The G-20 Debt Service Suspension Initiative also delivered valuable breathing space for many countries in the region, alleviating debt service pressures in excess of $6½ billion from mid‑2020 to what is in the pipeline through mid‑2021. For countries where deeper relief may be needed, the G-20 Common Framework for Debt Treatment could provide a mechanism to tailor solutions to each economy’s circumstances.
The Fund estimates that the regional economy contracted by ‑1.9 percent in 2020. While somewhat less severe than projected last October, this is still the worst outcome on record. Fortunately, the region will recover some ground this year and is projected to grow by 3.4 percent. Even so, per capita output is not expected to return to 2019 levels until after 2022.
According to the Fund, economic hardship has caused significant social dislocation. In many countries, per capita incomes will not return to pre-pandemic levels until 2025. The number of people living in extreme poverty in sub‑Saharan Africa is projected to have increased by more than 32 million. There has also been a tremendous ‘learning loss’ for young people. Students in the region have missed 67 days of instruction, more than four times the days missed by children in advanced economies.
The outlook for sub‑Saharan Africa is expected to diverge from the rest of the world, with constraints on policy space and vaccine rollout holding back the near-term recovery. While advanced economies have deployed extraordinary policy support that is now driving their recoveries, for most countries in sub‑Saharan Africa this is not an option.
“As we’ve observed throughout the pandemic, the outlook is subject to greater-than-usual uncertainty,” Selassie said.
The main risk is that the region could face repeated COVID-19 episodes before vaccines become widely available. But there are a range of other factors—limited access to the external financing, political instability, domestic security, or climate events—that could jeopardize the recovery. More positively, faster‑than‑expected vaccine supply or rollout could boost the region’s near-term prospects.
