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Africa’s Pulse: An analysis of issues shaping Africa’s economic future


An analysis of issues shaping Africa’s economic future

Economic growth in Sub-Saharan Africa (SSA) is set to decelerate from 4.1% in 2021 to 3.3% in 2022, as a result of a slowdown in global growth, rising inflation exacerbated by the war in Ukraine, adverse weather conditions, a tightening in global financial conditions, and the rising risk of debt distress. These trends compromise poverty reduction, already set back by the impact of the COVID-19 pandemic.

Africa’s Pulse is a bi-annual publication of the Office of the Chief Economist in the World Bank Africa Region. It analyzes the short term economic prospects for the continent and current development challenges, as well as a special development topic.

The latest edition of the Africa’s Pulse shows economic activity in Sub-Saharan Africa is slowing amid global headwinds, hindering poverty reduction. Economic growth is expected to slow to 3.3 percent, from 4.1 percent in 2021, a downward revision of 0.3 percentage points from the April 2022 Africa’s Pulse forecast. The downward revision from the April Africa’s Pulse forecast is on the back of multiple shocks affecting the economy, which include the slowing down of the global economy, tightening global financial conditions, elevated inflation driven by rising food and fuel prices exacerbated by the war in Ukraine, adverse weather conditions, and rising risk of debt distress.

Highlights from this issue:

The estimated per capita income growth of 0.7 percent for the region in 2022 is insufficient to meet the challenging goals of poverty reduction and shared prosperity in the medium to long term. Instead, poverty reduction trends, which were already derailed by the pandemic, have slowed further. The pandemic has induced a lasting impact on long term growth, affecting particularly the poorest people and increasing extreme poverty.

Consistent with rising poverty rates, inequality within countries in the region has widened with rising fuel and food prices exacerbated by the war in Ukraine. The economic divide between the rich and poor in Sub-Saharan Africa rose substantially during the COVID-19 pandemic following job and income losses, especially among less-skilled workers in the informal sector. Rising unemployment was particularly sizable across gender, with women being the most affected. The weak rebound of the regional economy in the aftermath of the pandemic along with the setback from rising inflation was insufficient to undo pandemic-induced job and income losses.

The performance of the Sub-Sahara African economy is not uniform across subregions. The real GDP growth of the West and Central African (AFW) subregion is estimated at 3.9 percent in 2022, 0.3 percentage point higher than that of East and Southern Africa (AFE).

Rising inflation is weighing on economic activity in Sub-Sahara.  The upward trend in inflation following the post-pandemic period was exacerbated by the war in Ukraine, soaring to record highs in many countries. The escalation of the war has fueled a rise in commodity prices, particularly food and energy prices. High pass-through of food and fuel prices to consumer prices has caused headline inflation to spike.

Food insecurity is rising sharply, affecting the poor disproportionately, and raising social tensions. The number of people facing severe food insecurity in Sub-Saharan Africa has increased sharply, with more than one in five people facing hunger and more than a quarter billion people being undernourished. Food security crises are becoming more frequent and more acute in the subcontinent. About 140 million people are estimated to be acutely food insecure in the region in 2022, up from 120 million in 2021. In East Africa alone, an estimated 55 million people will be acutely food insecure— up from 41 million in 2021.

The fiscal space to respond to growing challenges is almost depleted in some countries. Faced with these multiple challenges, policy makers have few coping mechanisms. The fiscal space to mount effective responses today is gone because of high levels of debt across Sub-Saharan African countries, rising borrowing costs, and depleted public savings. The primary deficit of the region expanded during the pandemic to 6.3 percent of GDP in 2020 (from 4.1 percent of GDP in 2019) as governments frontloaded support to the most vulnerable segments of the population and affected firms.  As a result, debt, which was already rising since 2011, jumped further and is projected to remain elevated at 58.6 percent of GDP in 2022. Assistance extended by multilateral institutions to the poorest countries in the form of the Debt Service Suspension Initiative was dwarfed by the scale of the problem. As a result, the number of countries in or at high risk of distress continues to rise as the risk of a financial crisis mounts.