War in Ukraine Puts Africa at Risk of Stagflation, Debt Distress
(Bloomberg) -- Africa risks sliding into stagflation, a prolonged period of slow economic growth accompanied by high inflation, as price pressures and supply-chain disruptions emanating from Russia’s invasion of Ukraine stifle output, according to the African Development Bank.
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The continent’s real gross domestic product is projected to expand by 4.1% in 2022, down from 6.9% last year, when it bounced back strongly from the impact of the coronavirus pandemic, the Abidjan, Ivory Coast-based lender said in its African Economic Outlook report published on Wednesday. It sees the growth rate at about 4% in 2023 if the conflict persists.
“The deceleration in growth highlights the severity of the impact of the Russia–Ukraine conflict on Africa’s economy,” AfDB President Akinwumi Adesina said in a forward to the report. The war in Ukraine “erupted as Africa’s economy was on a path of recovery from the ravaging impact of the pandemic, and it threatens to set back the continent’s promising economic prospects,” he said.
The bank projects that Africa’s average inflation rate will accelerate to 13.5% in 2022 from 13%, fueled by a sharp rise in commodity prices, especially energy and food.
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Africa has also been hit by a sell-off in emerging-market debt, as the war spurs investors to seek safe havens. The premium investors demand over US treasuries to hold African sovereign debt has risen 165 basis points this year to 773 basis points, according to JPMorgan Chase & Co. indexes.
As such, indebtedness remains a threat to the continent’s economic recovery, despite recent international debt-relief initiatives, such as the Debt-Service Suspension Initiative, the Common Framework, and the International Monetary Fund’s general allocation of $650 billion-equivalent Special Drawing Rights, according to the AfDB.
While those initiatives have helped alleviate liquidity pressures in many countries by boosting their external buffers, they haven’t erased vulnerabilities, with 23 African countries either in or at risk of debt distress as of the end of February 2022, it said.
The AfDB expects the continent’s debt ratio to stabilize at about 70% of GDP this year, down from 71.4% in 2020, supported by economic growth and debt-relief measures. That’s still above pre-pandemic levels.
Other highlights:
Structural reforms, such as debt restructuring and reprioritizing public spending, are required to ensure long-term sustainability.
About 30 million Africans were pushed into extreme poverty and about 22 million jobs were lost on the continent last year due to the pandemic.
The prolonged effect of economic disruptions stemming from the Ukraine war may push an additional 1.8 million Africans into extreme poverty this year and another 2.1 million in 2023.
The continent will need $118 billion to $146 billion a year until 2030 to meet targets countries have set to curb carbon emissions.
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