African economies remain resilient with a stable outlook in 2023-2024, despite the tightening global financial conditions, the African Development Bank has projected in a new report.
The report, Africa’s Macroeconomic Performance and Outlook (MEO) 2023, estimates Africa’s average GDP to stabilize at 4% in the next two years, up from 3.8% in 2022.
Presenting the report on 17 February on the sidelines of the 36th African Union Assembly in Addis Ababa, African Development Bank chief economist and vice president Kevin Urama said that the continent could benefit from high demand for its commodities as countries seek alternatives for food and energy in response to disruptions caused by the war in Ukraine.
The continent, he noted, remains a treasure trove for smart investors globally, but it must strive for higher growth rates, more inclusive economies, and greater resilience to external shocks.
“The stable outlook projected for 2023–2024 reflects the continuing policy support in Africa, global efforts to mitigate the impact of external shocks and rising uncertainty in the global economy,” he said.
The new publication, to be released in the first and third quarters of each year, will provide African policymakers, global and domestic investors, researchers, and other development partners with an up-to-date, evidence-based assessment of the continent’s recent macroeconomic performance and short-to-medium-term outlook amid dynamic global economic developments.
Urama urged bold policy actions. “To meet the significant financing gaps in Africa, it is imperative to enact policies that can mobilize and leverage private financing for development in Africa,” he said.
The unfavorable global conditions have led to rising inflation, higher debt servicing costs and increased risk of debt distress in developing countries, including Africa.
“As in many emerging market economies, tightening financial conditions and the appreciating US dollar have had dire consequences for most African economies,” Urama said. It has also become difficult for African countries to access international capital markets for new financing, he added.
Most African currencies, especially in commodity-exporting countries, lost substantial value against the dollar in 2022 due to monetary policy tightening in the United States. The depreciation rates ranged from 21% in Malawi to 69% in South Sudan.
Urama cautioned that currency weaknesses in Africa’s more globally integrated economies, such as Algeria, Kenya, Nigeria, and South Africa, may persist in 2023.
“Key drivers of the currency depreciations include the tightened global financial conditions and weak external demand, macroeconomic imbalances, constrained revenues and weak investment flows, and political risk aversion associated with countries’ election cycles,” Urama said.
He said that African countries’ fiscal positions have already been stretched by Covid-19 policy responses and support for vulnerable populations against rising food and energy prices amid high debt and the impacts of climate change.
Other economic headwinds include the spillover effects of rising geopolitical tensions, particularly the Russian invasion of Ukraine. These conditions are pushing price stability beyond most central banks’ grasp.