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African nations are facing their toughest economic challenges this century as desperately needed funding evaporates, the International Monetary Fund said.
Rising interest rates have increased borrowing costs for sub-Saharan African nations. Not a single country in the region has been able to raise financing through a dollar bond sale over the past year, the Washington-based lender said in its Regional Economic Outlook report The Big Funding Squeeze on Friday.
Even before the coronavirus pandemic struck, many African countries were burdened by budget deficits and high levels of debt, and didn’t have as much fiscal firepower to provide relief measures or stimulate their economies as developed markets.
Now, the sharpest tightening in monetary policy in major economies in a generation is hitting African nation’s currencies and shutting them out of debt markets at a time when donor financing has also dwindled. “Any one of these shocks individually would’ve been considered a once-a-multi-decade shock,” IMF Africa Department Director Abebe Selassie said in an interview. “Definitely, in terms of macroeconomic challenges, this is by far the most difficult period I think from the turn of the century.”
Financing from capital markets, donors, and countries like China, which had in recent years poured in tens of billions of dollars in infrastructure funding, have pulled back at a “most unfortunate time,” the report said. Budget shortfalls could force countries to cut spending on critical sectors like health and education, hitting their growth potential down the line. – Bloomberg
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