Sub-Saharan Africa’s recovery has been sharply interrupted. Last year, activity in sub-Saharan Africa finally bounced back, bringing GDP growth in 2021 up to 4.7 percent.
Unfortunately, growth is expected to slow this year by more than 1 percentage point to 3.6 percent, as a worldwide slowdown and a dramatic pickup in global inflation spill into a region already wearied by an ongoing series of shocks.
Rising food and energy prices are striking at the region’s most vulnerable, and macroeconomic imbalances are approaching levels not seen in decades.
A Shifting and Tumultuous Global Environment
Three major global developments are reshaping sub-Saharan Africa’s outlook: the slowdown in advanced economies and emerging markets, tightening global financial conditions, and volatile commodity prices.
In the months since April, growth projections have been scaled back worldwide. Global growth in 2022 has been revised down by almost ½ percentage point, driven in large part by a drop for both advanced economies and China of about 1 percentage point.
With the rapid pickup in global inflation, monetary policy normalization in advanced economies has sped up. In this context, capital flows have remained precarious (Figure 1).
For the first half of the year, outflows from sub-Saharan Africa rivaled those associated with the onset of the COVID-19 crisis or the 2015 commodity price shock, adding to pressure on exchange rates, with the largest depreciations observed in Ghana, Malawi, and Sierra Leone.
Global commodity prices have been particularly turbulent. Wheat, for example, almost doubled at the onset of the Russian invasion of Ukraine but has since returned to prewar levels (Figure 2).
More broadly, sub-Saharan Africa’s terms of trade are still expected to improve in 2022, compared with last year, but some gains have been scaled back since April, and significant heterogeneity persists—oil exporters can expect an improvement of about 16 percent in their terms of trade this year, while non-resource-intensive countries face a drop of about 4½ percent.
For commodity exporters and importers alike, however, external prices are now increasingly uncertain.
Macroeconomic Imbalances Have Returned…
Policy space to confront the latest challenges remains thin as the region endures its third year of crisis.
Over the past few years, as authorities have struggled to protect lives and livelihoods throughout the COVID-19 pandemic, fiscal positions have deteriorated, increasing regional public debt to about 60 percent of GDP.
And with global supply chain disruptions adding to the fallout from the war in Ukraine, double-digit inflation is now present in about 40 percent of the region’s economies.
On public debt, regional indebtedness is now approaching levels last seen in the early 2000s before the impact of the Heavily Indebted Poor Countries Initiative, though with a different composition (Figure 3).
The substitution of low-cost, long-term multilateral debt with higher-cost private funds has resulted in rising debt-service costs and higher rollover risks.
Nineteen of the region’s 35 low-income countries are in debt distress or at high risk of distress.
Out of the other ten countries of the region, three have faced spreads of more than 1,000 basis points at some point over the past six months (Angola, Gabon, Nigeria).
On inflation, rising prices have mirrored worldwide trends, where inflation has increased more rapidly and more persistently than expected, and where incomes have been squeezed by hikes in the cost of living.
Recent inflation increases may appear less striking relative to historical averages for sub-Saharan Africa (Figure 4), especially for countries with fixed exchange rates, but much of the recent movement has been driven by essential food and energy items, which are imported in many countries and average 50 percent of the region’s consumption basket.
As a result, poverty, food insecurity, and malnutrition have been exacerbated, particularly in urban areas, with consequences not only for confidence and economic growth but also for social and political stability.
Rising food and energy prices have traditionally been robust predictors of social unrest and have contributed to growing protests across the region this year (Ghana, Guinea, Mozambique, Sierra Leone).
However, looking beyond food and fuel prices, regional core inflation remains muted at this stage.
…Clouding the Economic Outlook…
The current upheaval comes at a most unfortunate time, as many countries are still dealing with the fallout from a pandemic that is far from over.
Vaccination rates in sub-Saharan Africa are still only a fraction of those in other regions (21 percent of the population fully vaccinated), leaving many countries exposed to further illness and the possible emergence of new variants.
Nonetheless, as underscored in the April 2022 Regional Economic Outlook: sub-Saharan Africa, the region enjoyed a surprisingly strong recovery toward the end of 2021. With final GDP data for more countries, the growth figure for 2021 has been revised upward further to 4.7 percent.
However, the recent global turmoil has interrupted this progress. Regionwide, growth is expected to slow to 3.6 percent in 2022 and 3.7 percent in 2023 because of muted investment and an overall worsening balance of trade (in volume terms).
Oil exporters will grow by 3.3 percent in 2022, and other resource-intensive countries by 3.1 percent. Even with a drop in their terms of trade, diversified non-resource-intensive countries will continue to be among the region’s more dynamic and resilient economies, growing by 4.6 percent (Figure 5).
