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At Development Reimagined, we first proposed the idea of a Borrowers Club in 2020, and have been working on making the concept a reality since then, speaking and writing extensively about its importance for debtor countries in the current creditor-centric financial system and the power it holds in providing critical financing to countries when they need it the most. We are therefore very pleased to see this development.

As a Borrowers Club, this is a historic moment and major victory not only for the OSC but for all borrower countries as it marks the first official establishment of a club that centers borrowers’ needs, interests, and priorities. 

As the OSC continues to expand and add new members, Ministers of Finance and the Secretary-General called on all countries in the Global South to seek membership in the CLUB and invited international organizations and initiatives to work together closely with the CLUB.

In the Joint Statement, Ministers of Finance called on creditors to work alongside debtors to ensure an international financial system that accurately represents the interests of countries in the Global South. The Joint Statement also made it clear that the objective of the CLUB is to achieve authentic development through strategic investment in sectors that enhance sovereignty.

The first meeting of the Ministerial Committee of the CLUB is set for early 2024 to decide and operationalise the priority actions and coordinate further.   

To read the official joint statement of the Ministers of Finance, click here, and to read the press release, click here. 

December 2023

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“Reimagining Debt Rules: What is the African Position on the G21 Common Framework?”

The reason for this event was clear. The current international initiatives for debt relief and restructuring – the G20 (now G21) Common Framework for Debt Treatment and a new Global Sovereign Debt Roundtable, co-chaired by the IMF, World Bank, and India – are problematic for many reasons, including the fact that there are either none or very few borrowers at the table when debt negotiations or restructuring talks take place.

These mechanisms are also very slow and provide very limited fiscal breathing space for countries actively engaging in these processes. The initiatives have also involved sporadic treatment of different creditors –with some being protected through IMF arrears policies (e.g., private sector), others not included at all (e.g., multilaterals) and some only included at a later stage (e.g., domestic creditors).

On the African continent, Zambia has been the most recent victim of these initiatives –with a debt restructuring deal that took almost three years to achieve after initial default. There are multiple examples of extremely slow negotiations in previous rounds of debt management. For instance, Somalia is only now – in 2023 – expected to achieve its “completion point” under the Highly Indebted Poor Countries Initiative (HPIC), a scheme created in 1996 and which Somalia joined in 2016.

This is not a surprise. For far too long, critical discussions around debt relief and debt restructuring have taken place without the perspectives and inputs of African countries. The event, therefore, sought to examine the African position on the G21 Common framework and tease out what an African-designed alternative would look like that other countries might support.

The event had a stellar line up of panelists including Dr Hanan Morsy, Deputy Executive Secretary and Chief Economist of the United Nations Economic Commission for Africa, Governor Dr. Denny H. Kalyalya, Bank of Zambia, Mr Guillaume Chabert, Deputy Director of SPR Department, IMF, Professor Tang Xiaoyang, Chair and Professor of the Department of International Relations at Tsinghua University and Mr Matthew Martin, Executive Director, Development Finance International. The event was moderated by Ms Hannah Ryder, CEO of Development Reimagined and closing remarks from Mr Patrick Ndzana Olomo, Acting Head of Economic Policy and Sustainable Development, African Union Commission.

Governor Kalyalya shared the experience of Zambia with the Common Framework and the country’s discussions with various creditors. The Governor spoke about the challenges with the Framework including no clear rules and procedures, lengthy discussions and delays with creditors, and a lack of clarity on the scope of lending.

The Governor also spoke about pressures the government was facing domestically (including being a part of an IMF program) and the impact that delays in these discussions have on the country’s economy. The Governor also reminded the audience that shifts in priorities and views from the government vis-à-vis the creditors can make these processes extremely challenging. It also important to remember that beyond debt, igniting growth and figuring out how to use lending to reignite growth is just as important as the discussions around existing debt.

Mr. Martin raised crucial points on the need for the Common Framework process to be faster, deeper, more comprehensive and broad. Faster – meaning, a clear timetable for debt discussions and implementation, deeper referring to immediate debt relief to rise up to a country’s level of debt service, comprehensive meaning all types of creditors need to be included and broader in that more countries need to be involved. He also shared the experience of supporting coordination of borrower countries during HPIC, which, for instance, led HPIC borrowers to consistently push for a higher debt relief amount (around 5%) due to delays of the debt relief process itself. 

Professor Tang spoke on China’s views on the Common Framework in particular that China believes that it should include all creditors (both private and multilateral creditors), that these creditors should be sharing the burden fairly, that cases need to be treated individually and that there needs to be a multilateral consensus.

Mr. Chabert spoke about what borrowers have been asking for in terms of changes in the processes which include efficiency, a clear timeline, more clarity on scope and lending and reducing the cost and burden of these processes from the shoulders of borrower countries. Mr. Chabert also stressed that these processes needed to be separated from geopolitics.

Dr. Morsy underscored the importance of bringing these conversations into real life by understanding the costs these countries are incurring when going through prolonged restructuring discussions. Dr. Morsy also raised an important question of whether the Common Framework should even be limited to countries in distress or countries that have defaulted and argued for including different countries that have different interests and perspectives on what needs to be done. Furthermore, Dr. Morsy mentioned that there is also no incentive for borrowers to be proactive and look at the different options before going into default or debt distress because they are penalized by credit rating agencies.

Inspired by the event, DR has prepared a summary of 6 specific proposals for African-derived, borrower-centric and people- centred principles to underly the reform of the G21 Common Framework here.

Disclaimer: This document does not reflect the views of the individual speakers nor their organisations during the event. It is a summary of the overarching conversation put together by Development Reimagined.

The African Position on the G21 Common Framework Event

October 2023

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But was this really the case for African countries? Are African countries experiencing the same challenges as the rest of the world, or faring better or worse?

To answer these questions we dug through the IMF’s WEO data and found four main takeaways:

1. Growth forecasts for Africa remain ahead of the global average, for a third consecutive year since 2021. The IMF projects the global economy to grow at 3.0% and 2.9% in 2023 and 2024, respectively. Meanwhile, Africa is projected to grow at 3.3% in 2023 and 4.0% in 2024.
2.  African countries remain amongst the fastest growing economies in the world, with six countries from Africa making the IMF’s list of the ten fastest growing economies in the world in 2023 and 2024.
3. African countries remain resilient, but the continent is not yet out of the woods. The IMF projects Africa’s growth rate in 2023 to decline from 4% in 2022 to 3.3% before rebounding to 4% in 2024. These rates remain below the historical average of 4.8% as well as the pre-pandemic projections. Inflation remains in double digits in 14 African countries; interest rates remain high globally, limiting credit access; and many countries continue to experience climate-related disasters.
4. Even with a projected growth rate higher than the global average, African countries dominate the World Bank/IMF’s list of countries at risk of debt distress. Notably, five of the six African countries on the IMF’s list of fastest growing economies in the world are tagged as having either a moderate or high risk of debt distress. Failing to account for the significant growth potential of African countries, the World Bank/IMF’s Debt Sustainability Analysis (DSA) framework continues to produce unfavourable debt assessments which can undermine Africa’s development aspirations by limiting access to much needed development finance.

It is clear from the IMF’s WEO then, that African countries require special and targeted consideration going forwards.

So, what is needed to make the global economy, and the international financial system (that the IMF and World Bank is a key part of) work better to meet African needs?

We have three suggestions.

Borrower coordination is essential for good deals: During the Annual meetings, there was another Global Sovereign Debt Roundtable held, which included three African countries – Ethiopia, Ghana, and Zambia. Whilst the GSDR is a step forward, the borrowing countries, especially from Africa, remain underrepresented, whilst creditors still dominate the discussions. Zambia finally managed to get a debt restructuring deal after many years. Meanwhile, Ghana and Ethiopia, the two other African participants in the GSDR, are yet to reach a deal with the Official Creditor’s Committee. As a result, this system should be reformed and African countries also coordinate on their response to the creditor-driven debt challenges. A “Borrower’s Club,” as we have proposed, would amplify borrowers’ voices in debt system reforms and aid in creating a more equitable credit rating approach, as recommended by the APRM.

African countries should explore alternative sources of funding to meet the continent’s significant finance needs. Egypt recently issued Africa’s first Panda bond in the China capital market. Other African countries could look to capital markets in China, and other emerging economies for sources of financing as concessional capital remains scarce.

African countries should prioritise growth – not austerity and spending cuts. With the effects of global economic shocks likely to persist into the medium term, and drag down growth rates in the region, African countries need to find new sources of growth. Value-addition and economic diversification through the development of new industries such as the pathogen economy are possible ways for African countries to keep growth on track.

Our infographic below explains all these findings. Have a look through!

To find out how Development Reimagined can support you, your organisation or Government to review key economic response policies to the COVID-19 crisis, the Russia/Ukraine war, and other shocks, please email the team at clients@developmentreimagined.com.

Special thanks go to Rugare Mukanganga, Meghna Goyal, Trevor Lwere, and Jade Scarfe for their work on the graphics, collecting/analysing the underlying data, and sharing this accompanying article.

The data was collated from a range of sources including government websites and media reports, IMF and World Bank data. Our methodology is entirely in-house, based on analysis of economic growth, inflation, and other trends.

October 2023

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From the event, there were six tangible working outcomes for reform of the DSA, which should receive attention during the review process. (You can download our policy brief “Breaking the Bias – Rethinking Debt Sustainability for Africa’s Future” here)

1. There is a strong demand from African governments for a reimagined DSA which reflects development and addresses “African risk perception” – African institutions can show leadership on this.

Challenge: There is a need for a new DSA which is more relevant and applicable to the African continent. For instance, the current DSA fails to contextualise the continent’s development history and its colonial underpinnings. Consequently, there is limited scope for domestic revenue mobilisation, and countries have sought external finance in the form of debt to address financing gaps. However, the supply of concessional loans is limited, whilst the level of private finance, which has high-interest rates, has increased. These high-interest rates stem from a “perception premium” which is – to some degree – based on the DSA.

For instance, as we have highlighted before, of all the world’s countries with the highest debt to GDP ratios, the IMF/World Bank seem to classify almost all those that are African as debt distress or at risk of debt distress. Few, if any, countries that have high debt to GDP ratios from other regions are classified as such.

Solution: African institutions and banks should lead a process, including the IMF and World Bank, to devise a new DSA that aligns with the continent’s own development experience and therefore the continent’s relationship with external finance.

2. A new, reimagined DSA should apply to all countries equally.

Challenge: The DSA framework is currently differentiated by country type/income, and the DSA for low-income in particular uses a variety of metrics such as debt-to-GDP, debt service to exports, and debt service to revenue. However, some of these metrics have a low evidential basis, and are not applied to high-income countries, while others such as export-to-GDP ratios can exacerbate a focus on the export of natural commodities and the importation of finished goods, resulting in a development model that continuously exposed Africa to economic shocks such as trade shocks, repeated liquidity constraints, as well as macroeconomic management challenges. They all, therefore, contribute to risk assumption and in some cases dependency. The result is the creation of a “Market for Lemons”.

Solution: The DSA should apply to all countries equally – what is acceptable in surveillance for the G7 or BRICS should be acceptable for the rest of the world, especially African countries.

3. A new, reimagined DSA should account for asset creation with debt and natural capital maintenance, not just liabilities.

The DSA fail to account for “positive” or “good debt” and investment in critical infrastructure that has potential positive spillover effects which can contribute to overall economic growth. Indeed, we are in an era where there is a push towards investment in renewable energy, clean technologies, and clean transportation, which are both climate-friendly and necessary for development.

Beyond this, there is a need for the inclusion of African country’s natural capital which increases the country’s longer-term resources, which the current DSA fails to capture. There is a huge amount of economic potential which is unaccounted for through natural capital, therefore further assessments are needed to account for future potential resources.

Solution: The DSA should account for “good debt” which is projected to produce assets with positive spillover effects, including profit, employment opportunities, trade facilitation and so on. Beyond this, the DSA should also seek to capture the value of “natural capital” maintained such as biodiversity assets.

4. Climate factors (esp. risk) should be incorporated into DSA carefully and uniformly across all countries to avoid further excluding African countries from accessing finance.

Challenge: The inclusion of climate risk and loss and damage within the DSA could exacerbate the “Market for Lemons” effect discussed above, as incorporating climate change needs has the potential to inflate risk perceptions. For example, if the DSA accounts for climate risk for countries that are outside of bond markets, it may increase the risk perception of these countries, thus exacerbating the “African Risk Premium”. Therefore, there is a challenge in how to include climate factors in a balanced way, to ensure that low- and low-middle-income countries can widen their lending portfolio, rather than have it further restricted.

Solution: If climate risks are included in the DSA, there needs to be an extremely specific framework on what is included, and what is not. For example, if loss and damage are included with the DSA, it must be specified what the end purpose is of its inclusion. For example, is it to facilitate disaster preparedness terms and conditions to be mandated, or is it to support the country to integrate the eligibility as part of their debt? It must also be made clear how this will become a component of a broader toolkit on how to support African countries, rather than restrict them.

5. Support African countries in producing “homegrown” DSAs which consider a range of scenarios and assumptions.

Challenge: Most African Ministries of Finance simply accept the IMF and World Bank DSAs, and do not always understand the various scenarios and assumptions, which are often presented as a black box. However, there are examples of countries such as Argentina that have produced their own DSAs and therefore can challenge certain assumptions or scenarios – to forecast different results or possibilities. For instance, countries often face difficulties in discussing how much of their debt challenges are liquidity-based versus solvency – meaning the definition and application of “debt distress” is not uniform by the IMF/WB. Assumptions such as discount rates are also highly contested by the economic profession but not exposed in the analysis, and again make a major difference to distress analysis.

Solution: African Ministries of Finance should be empowered to deliver their own DSAs and scenarios under different contexts, including different sustainability contents, interest, currency and discount rate assumptions. This enables countries to design and implement a wider range of policies to lower the cost of capital to align with sustainable development – rather than being mandated to implement IMF-designed policies during the point of debt restructuring.

6. Support the creation of an African Credit Rating Agency (CRA), whilst addressing key challenges within the “big three” CRAs.

Challenge: CRAs are largely perception-driven, which subsequently contributes to the risk premiums African countries face. Major challenges with major CRAs include a lack of local presence within the African countries they are assessing, alongside a lack of locally-produced data to inform their analysis. These two challenges therefore make the ratings by CRAs extremely perception-driven, rather than by realities on the ground. Moreover, as noted in point 2, there is an overwhelming focus on debt as a negative product, as opposed to “debt positive” events, such as examining what debt is funding, and whether it will contribute to wider economic growth.

Solutions: There are two key solutions to the aforementioned challenges. First, there is a need for a private sector-driven, self-funded African CRA which can provide alternative analysis to the “big three” CRAs, and bolster the capacity of the African private sector to conduct their own economic assessments. Second, there is a need to engage with CRAs to improve their frameworks – as the APRM is currently doing. This information exchange and technical capacity building for the traditional CRAs should be core to the IMF’s DSA framework for the CRAs to provide a more holistic picture of African country’s economic circumstances.

The event had an all-African line-up of keynote speakers and panellists, including;

• Ms Oluranti Doherty, Director, Export Development (Acting Director, Advisory & Capital Markets), the African Export-Import Bank.
• Ms Hannah Ryder, CEO of Development Reimagined.
• Mr John Asafu-Adjaye, Senior Fellow at the African Center for Economic Transformation.
• Ms Faten Aggad, Senior Advisor on Climate Diplomacy at the African Climate Foundation (ACF).
• Dr Hanan Morsy, Deputy Executive Secretary and Chief Economist of the United Nations Economic Commission for Africa.
• Mr Olivier Pognon, Director and CEO of the African Legal Support Facility.
• Ms Karabo Chadzingwa, Researcher at the African Peer Review Mechanism.
• Mr Jean-Paul Adam, Director, Policy, Monitoring and Advocacy in the Office of the Special Adviser on Africa at the United Nations Secretariat.

September 2023

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African countries operate in a creditor-centric international financial system where the “rules of the game” have not been designed with low or low-middle-income countries in mind. In particular, the Debt Sustainability Analysis (DSA) by the IMF and World Bank only monitor low-income countries, resulting in an inherent bias. This reinforces a narrative that views African countries as ‘risky’ destinations, resulting in an ‘African risk premium.’ Further, Africa’s debt only accounts for 1.16% of global external debt, highlighting the misleading narratives that the continent is heavily indebted and placing a significant debt burden on the rest of the world. Moreover, this biased DSF does not account for “positive” debt, which can be spent on growth-producing assets, primarily infrastructure, and can have “spillovers” that create new growth.

To dig deeper into these challenges, Development Reimagined hosted a bespoke event during the African Climate Summit, which looked into questions such as:

• What would a “revised,” homegrown DSA look like for African countries? Is there an appetite for this? How would creditors react to African-produced DSAs?
• Would adopting the DSA make a difference to African countries’ availability of finance or not?
• Should African institutions and countries be producing their own DSAs?
• How can credit rating agencies be reformed to reduce the biased risk perception of the African continent?

We had an excellent lineup of speakers and panellists. The session was kicked off with an illuminating keynote speech by Ms Oluranti Doherty, the Director of Export Development for Afreximbank. The panel discussion was moderated by Ms Hannah Ryder, CEO of Development Reimagined, with panellists;

• Mr John Asafu-Adjaye, Senior Fellow at the African Center for Economic Transformation ACET.
• Ms Faten Aggad, Senior Advisor on Climate Diplomacy at the African Climate Foundation (ACF).
• Dr Hanan Morsy, Deputy Executive Secretary and Chief Economist of the United Nations Economic Commission for Africa.
• Mr Olivier Pognon, the Director and CEO of the African Legal Support Facility.
• Ms Karabo Chadzingwa, Researcher at the African Peer Review Mechanism.

Mr Jean-Paul Adam, the Director of Policy, Monitoring and Advocacy in the Office of the Special Adviser on Africa at the United Nations Secretariat, provided brilliant closing remarks to end the session.

Watch the event below in either English or French.

The event builds on research by Development Reimagined. To find out more, you can read our policy brief “How can the IMF, World Bank and other global financing mechanisms be reimagined to work better for Africa?” which can be found here.

September 2023

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This new report by Development Reimagined on the infrastructure financing needs of five African countries – the Republic of Congo, Morocco, Mozambique, Sudan, and Tunisia – highlights that a huge amount of external, concessional finance is required to meet the SDGs.

Numerous international organizations stress the importance of infrastructure for development. Yet, there is a severe lack of analysis on the actual infrastructure financing needs of the continent, making it increasingly difficult to identify the actual costs required to meet these needs – including the SDGs. Without knowing the quantifiable costs to meet infrastructure needs, effective spending on vital infrastructure becomes increasingly challenging.

To address this data gap, Development Reimagined has designed an econometric model to predict the infrastructure investment spending needs of the five African countries from 2022 to 2030 under two scenarios – Business as Usual (BaU) and Meeting the SDGs.

The reason for selecting these countries is that they are classed by the IMF and World Bank as having a high debt-to-GDP ratio beyond imposed limits alongside a history of engaging the IMF for bailouts. The Republic of Congo, Mozambique, and Sudan are classed as “in debt distress” by the IMF and World Bank’s Debt Sustainability Analysis (DSA), meaning that these three countries have already breached the nominal 60% debt-to-GDP ratio.

For emerging markets in market-access countries, the threshold is set at 70% debt-to-GDP, with Tunisia breaching this and Morocco being close. All five countries have not applied to the Common Framework.

We found that each country’s infrastructure investment needs multiply in varying proportions. For these five countries, annual investment needs will range from USD 3.9 – USD 18.5 billion, meaning that the equivalent of 9 – 58% of GDP will need to be set aside each year solely for infrastructural development.

The report goes into depth by breaking these investment costs down across 9 key infrastructure sectors. For all five African countries, road, energy, and port infrastructures constitute the sectors with the greatest infrastructure investment needs.

To meet the SDGs on road infrastructure alone, the Republic of Congo would need to spend USD 16.6 – USD 25.8 billion, whereas the remaining four countries would need to spend USD 45.5 – 70.8 billion (Morocco), USD 34.8 – 54.2 billion (Mozambique), USD 20.8 – 32.3 billion (Sudan) and USD 34.9 – USD54.3 billion (Tunisia).

The scale of financial commitments required highlights the urgent need for greater levels of infrastructure financing in these countries, but more importantly, indicates how significant a role infrastructural development plays towards broader economic growth.

Finally, the report highlights the relationship between the IMF and World Bank’s DSA and the inherent bias towards African countries, providing strategic recommendations for African and international stakeholders to push for DSA reform to be accommodating towards growth-producing assets funded by debt. We also encourage African governments to consider conducting their own DSAs as a benchmark to compare with the World Bank and IMF’s DSA thresholds.

The report is available for download here.

Our previous forecasting report, which covers Ethiopia, Zambia, Kenya and Chad, is also available here.

September 2023

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But, with only 7 years left to reach the UN’s Sustainable Development Goals (SDGs), there is still a long way to go if the targets are to be met, and whether the Summit will mobilise and deliver the real, concrete commitments needed remains to be seen, especially since previous broad commitments, such as the US$100 billion per year of climate finance for developing countries and US$100 billion in SDR reallocation remain unfulfilled. 

In fact, our forecasting shows just how huge these financing gaps are. Over the last half a decade, we’ve witnessed a plethora of economic shocks – from trade conflicts, the COVID-19 pandemic and the Russia-Ukraine War – all of which have impacted the continent’s ability to fund major infrastructure projects for long-term development. Indeed, during COVID-19, we estimated that African governments spent US$130 billion to address COVID-19’s economic and health effects. 

In this month’s infographic, we lay out the latest findings from our forecasting analysis on the infrastructure gaps for four African countries – Ethiopia, Zambia, Kenya and Chad – and analyse just how much more finance is needed for these countries to meet the SDGs. The reason for selecting these countries is that they have all – or have been rumoured to in the case of Kenya – applied to the Common Framework and are classed as “high” or “in debt distress” by the IMF and World Bank’s Debt Sustainability Analysis. We also include Ghana, from our past forecasting in May 2022, in our comparison table. 

Let’s take Ethiopia as an example. We found that to reach the SDGs, the total investment cost from 2021 to 2030 stands at USD 235.6 – USD 348.4 billion (low – high-cost estimate). In terms of average annual spend, to reach the SDGs Ethiopia would need to spend USD 23.6 – USD 34.8 annually, or 17% – 25% of GDP! When we break this down into sectors, road infrastructure will cost around USD 143 billion (accounting for 41% of the total infrastructure need), followed by rail at USD 70 billion (20% of total) and energy at USD 66 billion (18.9% of total).  

Overall, with the UN 2030 SDGs in mind, each country’s infrastructure investment needs multiply in varying proportions. Annual investment needs will range from USD 3.2-USD 34.8 billion, meaning that the equivalent of 9.7-49% of GDP will need to be set aside each year solely for infrastructural development! 

Yet, if this were to happen, as our analysis shows, countries would likely exceed arbitrary debt risk assessment categories of “moderate”, “high” or “in distress” – the problems of which we have covered in other reports. 

While our analysis is static and “worst case”- however, we think that under the SDGs scenario the infrastructure investments would themselves generate GDP – as infrastructure are growth-producing assets – so the ratios may not be as severe. Nevertheless, it is vital to be prepared for this possibility if infrastructure investment remains low. 

So, with the Paris meeting coming up, what can African leaders, policymakers and other development stakeholders be pushing for to deliver on these needs? We have two key suggestions: 

1. Our figures reinforce the fact that most African countries do not have “too much debt” but too little debt. In Paris, it will be crucial to encourage a shift in mindsets and analytical tools about this issue – such as the IMF and World Bank Debt Sustainability Assessments or credit rating agency assessments, and focus minds on the “positives” of debt for development, on the need for a massive scale up of cheap, concessional finance for infrastructure in particular. The SDGs and Agenda 2063 cannot be met without increased spending and sufficient access to concessional finance to do so.
2. Our figures also reinforce the need for debt payments suspension or restructuring for countries that are facing fiscal space constraints, as well as the urgent reallocation of special drawing rights (SDRs) to the African continent to ease fiscal space and enable continued infrastructure investment – for example through the African Development Bank (AfDB) or the Liquidity and Sustainability Facility (LSF). The precedent created where debt restructuring discussions and SDR reallocations discussions drag-on for over a year is a weak blueprint.

It’s clear the SDGs need finance – and a lot of it! Yet, without fundamental reform to the constraints embedded within the international financial system, African countries will continue to face barriers to concessional finance. Reform is needed, now.  

** 

 To find out how Development Reimagined can support you, your organisation or Government to review key economic response policies to the COVID19 crisis, the Russia/Ukraine war and other shocks please email the team at clients@developmentreimagined.com. 

Special thanks go to Rugare Mukanganga and Jade Scarfe for their work on the graphics, collecting/analysing the underlying data and sharing this accompanying article. 

The data was collated from a range of sources including: government websites and media reports, IMF and World Bank data and Statista. Our methodology is entirely in-house, based on analysis of economic growth, inflation and other trends. 

June 2023

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He was right. In April, the IMF released a new Africa-focused report, which looks at the continent’s economic growth outlook for the years ahead. The report argued that ongoing global challenges and economic shocks from climate, to the Russia-Ukraine War, will impact the continent the most. It was not surprising.  “Alarmist” reports, which brush over the continent are widespread, and portray African countries as passive actors unable respond to crises.

However, in contrast, African countries COVID-19 resilience is one example of how proactive policy measures by African leaders mitigated the spread of the virus. Further, really examining the data, there were three other key takeaways to keep in mind from the report that were overlooked.

First, aside from 2021, the IMF’s outlook for Africa as a region has been ahead of global forecasts. However, African regional growth slows down for two consecutive years – 3.9% and 3.6% in 2022 and 2023, respectively, due to a “big funding squeeze” from limited aid and access to private finance. Nonetheless, 39 African countries are still forecast to demonstrate faster economic growth than the total world growth in 2023. Moreover, regional economic growth is projected to rebound by 0.6% to 4.2% in 2024 when a global recovery sets in with reductions in inflation and monetary policy tightening. Whilst the rest of the world has a gloomy outlook, African countries will spearhead global economic growth.

Second, although African countries account for over 50% of countries within the top 10 fastest-growing economies globally in 2023 and 2024, the World Bank and IMF’s Debt Sustainability Analysis (DSA) singles out African economies. For instance, in 2024, six out of the seven fastest-growing African economies are classified as in moderate or in “debt distress” – the exception being Libya. This is of course not limited to African countries experiencing high-growth – as over half of the 70 countries on the IMF and World Bank’s DSA list are African. African countries account for almost all “in debt distress” ratings, aside from one non-African country – Grenada. As such, African countries will be continually constrained by the DSA despite having high forecasted economic growth, showing there is clearly an inherent bias in the DSA system.

Third, it is higher borrowing costs from monetary policy tightening elsewhere that is constraining Africa, not internal growth dynamics. Although the IMF has disbursed some emergency funds to support countries to manage and recover from the COVID-19 pandemic, they have not been at the scale required, and many have been short-term and relatively expensive. Indeed, the constrained fiscal space for African countries generated by higher interest rates risks constraining potential future growth, especially when there are huge infrastructure financing gaps which need to be closed through external financing. Our latest analysis shows that for four African countries which are classed as either in “high debt or in debt distress” have annual infrastructure investment needs which range from US$7 billion to US$34.8 billion to meet the Sustainable Development Goals (SDGs).

So why does all this matter? Well narratives hold power, even if the data doesn’t actually support them. And, publicising narratives – with economic tools – that leave out the role of growth on the continent reinforces white saviour complexes, with “simple fixes”. This results in the IMF and others placing emphasis on reform of borrowing countries – rather than the need to reform the international financial system as a whole.

The reality is we are in a complex world, where there are no simple fixes. There is a need for real, feasible action which needs to be taken into account by the IMFs shareholders, not just its borrowers. The most recent IMF report attempts this by going beyond the typical “US-China competition” dynamic, but there is a need for more specific, holistic solutions – such as regulation of credit rating agencies or regulation of external interest rate rises, or of reform of its own instruments like DSA, that the IMF could call for, and would really make a difference. Without these major shifts, the IMF will remain still stuck in the past.

The upshot? Two things. First, growth on the African continent is rebounding. Second, the IMF needs reform if it is to really service African countries in the way they need.

To find out how Development Reimagined can support you, your organisation or Government to review key economic response policies to the COVID19 crisis, the Russia/Ukraine war and other shocks please email the team at clients@developmentreimagined.com.

Special thanks go to Christy Un, Rugare Mukanganga, Kofi Owusu-Koranteng and Jade Scarfe for their work on the graphics, collecting/analysing the underlying data and sharing this accompanying article.

The data was collated from a range of sources including: government websites and media reports, IMF and World Bank data and Statista. Our methodology is entirely in-house, based on analysis of economic growth, inflation and other trends.

May 2023

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