For many countries across the globe, 2023 has been an economically challenging year. The world is still recovering from the COVID-19 pandemic, whilst the Russia-Ukraine and Israel-Palestine conflicts continue to present further challenges. The International Monetary Fund’s (IMF) latest World Economic Outlook characterizes the global recovery as “limping along, but not sprinting,” with a subdued global economic growth forecast dipping to 2.9% by 2024.
But looking ahead to 2024 will this ring true for Africa? In a recent article, the Africa Correspondent for The Economist predicts that the future of Africa will be a “struggle”. Writing in the Financial Times, another analyst argues that Africa is “the world economy’s biggest problem”. Before all these, the continent has been surrounded by claims of a pending “debt crisis”. But what is the real story for the continent’s growth going forward? Should we be hopeful, or is the picture as bleak as some headlines suggest?
At Development Reimagined, we have three key takeaways from both the IMF’s recent WEO Report and our internal analysis:
Africa will grow faster than the rest of the world in 2024. Africa has a forecasted growth rate of 3.3% in 2023, outpacing the global average of 3.0%. Africa will grow even faster in 2024 at 4.0%, with 37 African countries surpassing the global growth rate. Notably, seven African countries—Niger, Senegal, Libya, Rwanda, Cote d’Ivoire, Burkina Faso, and Benin—feature in the world’s ten fastest-growing economies.
While African economies remain resilient, the pathway to full recovery remains challenging. The 2024 forecasts are below the historical average of 4.8%. Other concerns include inflation, with 14 African countries battling double-digit inflation rates led by Zimbabwe (101%) and Sierra Leone (44%).
Africa is moving, but the world is sleeping on it. Ironically, five of the ten African countries forecasted to outperform the world’s average economic growth in 2024 are also listed under the countries facing moderate risk of debt distress according to the Debt Sustainability Analysis (DSA) framework. Moreover, the DSA shows that half of all countries at high risk of debt distress are African, with eight African countries already in debt distress. There is a mismatch here, with African policymakers recently stressing this in Nairobi.
The world is sleeping on Africa. Unfavourable debt assessments coming out of the IMF’s DSA framework hinder Africa’s growth momentum by making access to development finance difficult. Moreover, progress on debt restructuring is sluggish. By 2023, only Zambia had managed to restructure its debt; Ethiopia and Ghana are still in the process while Kenya is seeking a 25% buyback of its Eurobond due in 2024, and Chad just had its debt framework concluded.
Why are African countries facing unfavourable debt assessments, even when they are expected to grow faster than the global average? The notion that Africa is heavily indebted, as is peddled by the recent gloomy analysis in The Economist, is a misguided one that has adverse effects on the continent’s growth prospects. It focuses on the level of borrowing while completely missing the quality and use of that borrowing, especially growth-inducing debt. The IMF’s DSA Framework, in fundamental misalignment with the development trajectories of African countries, is equally guilty of this distortion. As Development Reimagined has previously argued, the IMF’s DSA is not fit for purpose: it needs to be reimagined to better serve African countries’ interests.
African countries must keep the fight for a reimagining of the DSA into one that truly reflects the continent’s unique development journey and its relationship with external finance. This new DSA should not only apply universally, bringing equity to the global financial landscape, but also recognize the potential of ‘good debt’ – debts that lead to tangible, positive outcomes like enhanced employment opportunities, trade facilitation, and the maintenance of vital natural capital, including biodiversity assets. A reformed, holistic DSA is something African and international policymakers should push for in 2024.
But what else can be achieved in 2024 to make the international financial system work for African countries?
First, the establishment of an African Credit Rating Agency (CRA) is a crucial step. This agency, driven and funded by the African private sector, would offer an alternative perspective to the dominant narratives of the ‘big three’ CRAs. The African CRA would also enhance the ability of the continent’s private sector to conduct independent economic assessments. Engaging with existing CRAs to refine their frameworks – a task currently undertaken by the APRM – is vital. Integrating these changes into the IMF’s DSA framework would ensure a more comprehensive understanding of the economic situations in African countries.
Secondly, African countries cannot afford to drink from one cup. As mainstream credit markets tighten, African countries should diversify their funding sources. Egypt’s recent issuance of the continent’s inaugural Panda bond in China’s capital market is a hopeful pioneering step, setting an example for other African countries. Such explorations, particularly in emerging economies, could offset the dwindling traditional sources of concessional finance.
Finally, in 2024, African countries should pursue new sources of growth. With projections still trailing behind pre-COVID levels, it’s clear that the impacts of global economic disturbances will linger. To manage the adverse effects of this, African countries need new sources of growth, particularly through value addition and economic diversification. The development of new sectors like the pathogen economy could be explored to provide sustainable pathways for keeping growth trajectories across the continent on track.
Article by Meghna Goyal and Trevor Lwere. Goyal is a Data Analyst and Economist at Development Reimagined, an African-led, Woman-led International Development Consultancy. Lwere is an Economist at Development Reimagined, an African-led, Woman-led International Development Consultancy.