Why cost-of-living crisis is acute in Sub-Saharan Africa – IMF

The International Monetary Fund (IMF) has given reasons it says have intensified the ongoing cost-of-living crisis across Sub-Saharan Africa.

The IMF is a global organization that works to achieve sustainable growth and prosperity for all of its 191 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being. The organization is governed by and accountable to its member countries.

The organization said the ongoing cost-of-living crisis in the region has placed significant strain on households, which allocate a large portion of their income to food compared to other regions. Additionally, governments are making fiscal adjustments amid limited financing options.

“All of these are putting quite a lot of strain on government services and, indeed, you know, the population,” said Abebe Aemro Selassie, Director of the IMF’s African Department, during a press briefing on the recently released Regional Economic Outlook for Sub-Saharan Africa report.

In Nigeria, particularly hit by an unprecedented cost-of-living crisis, many citizens accuse the IMF and the World Bank of pushing the Nigerian government to remove fuel and electricity subsidies and devalue the naira, two policies that fuelled economic hardship.

Political and social challenges

Discussing the report, titled “Reform Amid Great Expectations,” Selassie noted that economic growth in Sub-Saharan Africa remains subdued, especially on a per capita basis.

“We are projecting growth this year at around 3.6 percent, the same as last year, with some signs that it is beginning to accelerate. We’re projecting that it will reach around 4.2 percent next year,” he said. “This pace, needless to say, is not sufficient to reduce poverty or recover lost ground from recent years, much less tackle the developmental challenges countries face. Growth remains well below the 6.7 percent rate seen until about a decade ago.”

Selassie emphasized the significant variation in conditions across the region, noting that “9 out of the 20 fastest-growing economies are in Sub-Saharan Africa, particularly those with more diversified economies. We are seeing some improvement in macroeconomic imbalances, with inflation continuing to decline, budget deficits beginning to narrow, and debt-to-GDP ratios stabilizing, though at a high level. Interest payments, however, remain elevated.”

The report also highlighted the political and social challenges facing governments in implementing reforms.

“Our report discusses the tough balancing act policymakers in the region face. They need to sustain improvements in macroeconomic balances, make room for development and social protection spending, and implement reforms that are socially and politically acceptable. Achieving this requires communication, consultation, improved governance to build confidence, and measures to promote inclusive growth through job creation,” Selassie said.

Selassie noted the IMF’s commitment to supporting the region with resources to ease the reform period.

“Since 2020, we have provided funding amounting to $60 billion and stand ready to do more as countries request it. However, our support, amid declining official development assistance and challenging market conditions, means that countries face a tough funding environment,” he added.

The IMF official expressed optimism for the region’s future.

“Much work remains to be done by policymakers and the people of the region, but we remain extremely optimistic about Sub-Saharan Africa’s prospects. I have no doubt this challenging period will also be overcome, and growth resuscitated,” he said.