IMF calls for more economic resilience and reforms in Africa

International Monetary Fund

The International Monetary Fund (IMF) has called for more reforms to diversify and improve the resilience of the economies in Africa and to promote higher and more inclusive growth amid recovery from the Ukraine war.

In their initial activities for the week, IMF Directors looked at the Democratic Republic of Congo (DRC) growth among the highest in the region amid significant challenges and reviewed the Extended Credit Facility (EFC) and Extended Fund Facility (EFF) for Cameroon.

According to the Directors, Africa’s nascent economic recovery from mid-2021 is now subject to greater uncertainties because of the spillovers from the war in Ukraine, high inflationary pressures- especially food and fuel prices-, and a tightening of global financial conditions.

“Effective and resolute implementation of the authorities’ structural reforms, particularly to further strengthen transparency, good governance, and the anti-corruption framework, are essential to promote growth and help catalyse additional donor financing,” IMF Deputy Managing Director and Acting Chair Mr. Kenji Okamura said.

Also, in the case of DRC (which is the highest growing in the region), reforms are needed to diversify and improve the resilience of the economy and to promote higher and more inclusive growth.

Further suggestions for financial measures to simplify the tax system, broaden the tax base, and strengthen tax administration, accompanied by others to improve public financial management such as implementing a single treasury account and phasing out untargeted fuel subsidies are also needed.

“To help ensure financial sector resilience, the authorities should closely monitor the rising non-performing loans and proceed with bank restructuring within the timetable set by COBAC. Further efforts are also needed to tackle gender inequality and climate change-related challenges,” Okamura added.

Continued efforts to improve governance and the business climate would support private sector development and economic diversification.

Decades of war, poor governance, and underinvestment, however, have left African countries with high poverty rates, very low access to basic services and one of the largest infrastructure gaps in the continent.

The recent war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution and strong financial reforms. At the same time, economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and add to inflation. Fuel and food prices have increased rapidly, hitting vulnerable populations in low-income countries hardest.

According to the IMF, the economic outlook for 2022 remains positive, but with great uncertainties. Real GDP growth is projected at 3.8 percent in 2022, down from 4.5 percent at the time of the program’s First Reviews. Inflation is projected to rise to 4.6 percent in 2022, but to remain below 3 percent in the medium term hence the need for more economic resilience reforms by African countries.

International Economist, Edward Burrier believes that African countries must indeed increase economic resilience reforms otherwise, the economic suffering will increase.

“The economic suffering will increase, and the food shortages will become a political and humanitarian stress worldwide. And even if the war ended today, the world will be feeling the impact of dislocations in energy and commodities markets for years to come. World leaders have only just begun to digest this dire outlook,” Burrier wrote.

The increased economic risks induced by the Ukraine war will weigh adversely on global economic conditions throughout 2022 thus, more economic resilience reforms can be implemented.