The International Monetary Fund, IMF, has warned of a devastating economic impact of Russia and Ukraine in Africa.
The IMF recalled that after the devastating economic effects of the COVID-19 pandemic in Africa, the continent appeared to recover in 2021. Growth was 4.5 per cent up from the 3.7 per cent projected by the Fund.
But this recovery may be short-lived and according to a new IMF report showed growth in 2022 will slow to 3.8 per cent.
“With the pandemic, a few segments of society were able to insulate themselves from the economic effects,” Abebe Aemro Selassie, the director of the IMF’s African Department tells Quartz.
He contrasts this with the war in Ukraine, whose effects rising fuel and food prices, largely will be experienced by everyone.
These effects are already being felt across African cities whether it’s the doubling of fuel prices in Nigeria, food inflation and fuel shortages in Kenya, or heightened food insecurity in the Horn of Africa, a region that heavily relies on Russia and Ukraine for wheat imports.
The IMF report urges African governments to address the local impact of the war, balance inflation and growth, and manage exchange-rate adjustments adding none of these will be straightforward.
Governments must generate revenue: the two main options are increased borrowing or widening the tax base. However, Selassie has misgivings. “Taxes need to pay for government spending but governments have to use the money transparently,” he says.
In January, Kenya’s president Uhuru Kenyatta said $18.5 million is stolen from the government every day. In 2021, several African countries experienced double digit rates of inflation.
As a consequence of this chronic mismanagement, Africans are unlikely to accept tax rises easily.
Borrowing is also an unattractive option and according to the IMF, South Africa, Guinea Bissau, Eritrea, Ghana, Togo, Sierra Leone, Gabon, Congo, Angola, Mozambique, Kenya, and Zambia all have debt totaling more than 70 per cent of their GDPs.
Zambia’s debt burden exceedsits GDP, and in 2020, it became the first African country to default on payments to lenders during covid.
There is cause for optimism, mainly the promise of central bank digital currencies (CBDCs), and increased regional integration.
But again, nothing is straightforward. “Adopting CBDCs isn’t a panacea,” Selassie warns. “Making sure you have a robust payment system in the country is a major part of the work done that needs to be done by central banks.”