## G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA

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### EXECUTIVE SUMMARY
- Africa has significant potential from a young population and natural resources but successive shocks have eroded buffers and exposed vulnerabilities (G20 Background Note on Macroeconomic Vulnerabilities in Africa, IMF).
- A nascent recovery and gradual improvements in macroeconomic imbalances are at risk from renewed global trade disruptions, shifting ODA priorities, and heightened uncertainty.
- Low-income African countries with high public debt levels, stubborn inflation, large external deficits, and thin foreign reserve buffers are particularly vulnerable.
- Policy priorities emphasized:
  - Fiscal consolidation—including improving efficiency of public spending and domestic revenue mobilization, while protecting vulnerable groups—to rebuild buffers and safeguard debt sustainability.
  - Monetary policy focused on price stability, supported by credible frameworks and sound financial and external sector policies.
  - Growth-enhancing structural reforms to improve the business environment, strengthen governance, support job creation, and improve education, health, technological adoption, and trade integration.
- Continued international support—concessional financing, capacity development, and debt restructuring where needed—and international cooperation to address climate change and support global trade remain critical.

*Prepared by an African Department team; prepared based on information available as of May 31, 2025.*

### RECENT DEVELOPMENTS AND OUTLOOK
- Regional growth and heterogeneity:
  - Regional growth broadly stable at 3.2 percent in 2024.
  - Sub-Saharan Africa (SSA) growth picked up to 4 percent in 2024 (from 3.6 percent in 2023).
  - North Africa growth declined to 1.9 percent in 2024 (from 2.9 percent in 2023).
  - Egypt grew at 4.2 percent year-on-year in Q4 2024 (fastest since Q3 2022).
  - Resource-intensive African countries: growth 2.7 percent versus 3.8 percent in non-resource counterparts.
- Inflation and commodity developments:
  - Median headline inflation declined to 4.5 percent year over year as of February 2025 (from 6.3 percent at end-2023 and nearly 10 percent at end-2022).
  - Oil prices: fell by 16 percent in 2023 and by a further 2 percent in 2024.
  - Median food-price inflation dropped from a peak of 14 percent in February 2023 to below 6 percent as of February 2025.
- Fiscal and public debt:
  - Median primary balance improved by 0.8 and 0.2 percentage points of GDP in 2023 and 2024, respectively.
  - Median debt-to-GDP ratio edged down to 57.1 percent of GDP in 2024 (from 57.5 percent in 2023).
  - Eight countries tapped international bond markets in 2024 with total issuances exceeding $14 billion.
  - Six countries (Benin, Côte d’Ivoire, Gabon, Kenya, Egypt, and Morocco) issued foreign currency denominated sovereign bonds in 2025Q1.
- External sector and reserves:
  - Regional median current account deficit broadly stable at 4.2 percent of GDP in 2024 (1 percentage point of GDP better than in 2022).
  - Median country reserves 3.9 months of imports at end-2024 (from 3.7 at end-2023).
  - More than half of countries saw current account improvements in 2024; ten countries improved by more than 2 percent of GDP.
- Outlook and risks:
  - Under the April 2025 WEO reference forecast, growth projected at 3.9 and 4.1 percent in 2025 and 2026, respectively (compared to 4.2 and 4.4 percent projected in October 2024).
  - Median inflation expected to moderate to 4.1 percent in 2025, but some countries could experience a resurgence of inflation due to exchange rate pressures.
  - Downside model scenario for SSA suggests output could be lower by 2 percent in 2025–26 with larger losses for oil exporters.

### MACROECONOMIC AND STRUCTURAL VULNERABILITIES
- Prevalence of imbalances:
  - More than 40 percent of the 54 African countries exhibit two or more of these imbalances:
    1. primary balance below the debt-stabilizing level;
    2. a double-digit current account deficit;
    3. reserves below 3 months of imports;
    4. double-digit inflation;
    5. an interest-to-revenue ratio of more than 20 percent.
  - Among the 39 African LICs, the share with two or more imbalances rises to more than half.
  - Out of 13 countries with double-digit inflation at end-2024, six also had interest-to-revenue ratios above 20 percent.
  - About one in five countries in the region (and one in four LICs) experience three or more imbalances simultaneously.
- Fiscal vulnerabilities and debt service:
  - Over half of African LICs are assessed at high risk of, or already experiencing, debt distress under the IMF/World Bank LIC-DSF.
  - Interest payments on public debt have risen sharply over the past decade:
    - For non-LICs: doubled from 5 to 10 percent of revenue.
    - For LICs: tripled from 3 to 10 percent of revenues.
  - External principal payments reached an estimated US$55 billion in 2024 (1.9 percent of the region’s GDP), nearly half due from LICs.
  - Repayments set to increase to US$62 billion in 2025 (2.2 percent of GDP).
  - Over the next three years, repayments to private creditors will average about US$27 billion a year.
  - Market-access African countries saw yields rise by around 500 bps on average over the last three years; distressed sovereigns saw yields rise to above 20 percent.
  - The “African risk premium” is about 50 basis points in normal times but tends to double during periods of stress.
- Revenue and domestic-financing constraints:
  - Government revenues averaged 19 percent of GDP during 2022–24.
  - Comparisons:
    - EMDEs average: 28 percent of GDP.
    - Advanced economies (AEs): 41 percent of GDP.
  - Median revenue-to-GDP ratio for African LICs: around 17 percent; for the rest of Africa: 23 percent.
  - Bank exposure to sovereign risk has increased due to greater reliance on domestic markets, higher domestic interest rates, and shorter maturities.

### KEY SECTORAL AND STRUCTURAL CHALLENGES
- Inflation and monetary frameworks:
  - Thirteen countries faced double-digit inflation, eight of which are LICs.
  - Inflation persistence linked to monetary financing in some countries (examples cited: Angola, Burundi, Malawi).
  - North Africa experienced an inflation spike in 2023; supply shocks kept inflation above historical averages in Somalia and Sudan.
  - IMF staff analysis finds that, on average across all LICs, a one percentage point improvement in fiscal balances translates into a reduction in the current account deficit of half a percentage point.
- External imbalances:
  - Nine African countries (8 LICs) had double-digit current account deficits in 2024.
  - African LICs registered an average current account deficit of 5.4 percent of GDP coupled with an average fiscal deficit of 3.2 percent of GDP in 2024.
  - Of 40 African countries with IMF external assessments during 2022–24, 17 were assessed to have an external position weaker or substantially weaker than fundamentals and desirable policies.
- Net financial flows, ODA, and external financing:
  - FDI inflows averaged about 2.2 percent of GDP in the past four years.
  - Gross ODA flows declined by about 15 percent during 2020-23, reaching $68.2 billion in constant dollar terms.
  - ODA to non-African countries increased by 44.6 percent to $ 190.5 billion in 2023.
  - Transfers to Africa through multilateral donors declined by 23.7 percent to $31 billion in 2023.
  - Flows from bilateral donors decreased by 6 percent to $37.2 billion in 2023.
  - Multilateral organizations, including EU institutions and the US, provided about three-quarters of the region’s ODA flows in 2023; the World Bank provided close to a half of the region’s multilateral flows in 2023.
- Reserves and import coverage:
  - Fifteen African countries, of which 14 LICs, had reserve cover of less than 3 months of imports at end-2024.
  - Median FX reserves in African LICs dropped to 2.6 months of imports at end-2024, from 3.1 months at end-2022.
- Climate, conflict, infrastructure, and institutions:
  - In 2022, Africa experienced 80 climate-, weather- and water-related disasters affecting more than 110 million people and causing economic losses of just over US $8.5 billion.
  - Refugee flows since April 2023 from the Sudan conflict amounted to over 3 .9 million as of May 19, 2025.
  - In African LICs, less than half the population had access to electricity in 2023.
  - A quarter of Africa’s population lacked basic drinking-water services in 2022.
  - More than 80 percent of total employment across the continent was estimated to be informal in 2023, with 86 percent in SSA and 63 percent in North Africa.
  - Domestic credit to the private sector is estimated around 33 percent of GDP in Africa.
  - Only about half of African adults have a formal bank account; global developing-economies average is 71 percent.
  - The median share of commodities in African export earnings is 90 percent, versus the global average of 29 percent.
  - The IMF’s AI Preparedness Index places Africa around 34; the global mean is 48. Mauritius, the Seychelles, and South Africa score 53, 53, and 50 respectively on the AIPI.

### POLICY RECOMMENDATIONS: DOMESTIC PRIORITIES
- Fiscal policy and public finances:
  - Restore macroeconomic stability by reducing imbalances while easing trade-offs with long-term growth and social goals.
  - Continue fiscal consolidation through high-quality reforms, front-loaded where adjustment needs are high and financing is limited.
  - Protect vulnerable groups via targeted transfers and strengthened social safety nets.
  - Improve spending efficiency:
    - Remove inefficient fuel subsidies and reallocate savings to targeted development spending.
    - Reduce losses from inefficient public infrastructure allocation (estimated at 30–40 percent in developing countries) via better governance, strengthened public financial management, and transparent project selection.
    - Improve efficiency of public health and education spending; use digitalization to boost fiscal transparency and efficiency.
    - Reform SOEs through better financial monitoring, management, oversight, and transparency.
  - Raise revenues:
    - Broaden the tax base, increase tax rates where appropriate, reduce arbitrary exemptions, simplify the tax code, and emphasize predictable and progressive taxation.
    - Focus on corporate income and property tax collection and strengthen tax collection capacity, integrity, and accountability, including through digitalization.
  - Strengthen debt management and local debt markets:
    - Improve institutions, debt transparency, debt management, and debtor-investor relations.
    - Develop local debt markets and widen the investor base while monitoring public domestic debt vulnerabilities and the sovereign-bank nexus.
- Contingency planning and fiscal frameworks:
  - Pre-emptive contingency planning for trade, spending, or funding shocks to allow more agile responses.
  - Use medium-term fiscal frameworks to support planning, anchor expectations, and reduce funding volatility.
  - Resource-intensive countries should accumulate buffers to provide insurance against shocks.
  - Avoid accumulating arrears because they increase costs of public service delivery, reduce credibility, and act as an unpredictable tax on suppliers.
- Monetary, exchange rate, and financial policies:
  - Maintain price stability, remain flexible and data dependent, and preserve central bank independence and credible frameworks.
  - Where inflation is high, keep tight monetary policy; where inflation is within target, consider easing to support growth while remaining ready to reverse course if shocks occur.
  - Maintain adequate international reserve buffers; use FX interventions selectively and not as a substitute for macro adjustment.
  - For non-pegged countries, let the exchange rate adjust if shocks are large and persistent; for pegged countries, adjust the policy mix to sustain the peg.
  - Strengthen regional payment arrangements and consider settlement in local currencies (Pan-African Payment and Settlement System cited).
  - Ensure banks remain well capitalized, liquid, and profitable; strengthen regulatory and supervisory frameworks and monitor sovereign-bank exposures.
  - Deepen domestic financial markets through legal frameworks for secured transactions, credit registries, mobile banking, microfinance, and financial literacy; monitor crypto-asset risks.
- Structural reforms:
  - Prioritize ambitious, well-sequenced macro-structural reforms focused on the business environment, governance, and external sector to lift GDP.
  - Priority reforms include streamlining regulations, fostering competition, expanding infrastructure (transportation and power), advancing AfCFTA implementation, developing domestic capacity in mining and processing of critical minerals, and improving labor-market policies and human capital.
  - Strengthen institutions and governance: merit-based civil service, anti-corruption measures, transparency in procurement and natural-resource sectors, publication of reliable economic data, and adherence to Extractive Industries Transparency Initiative standards where applicable.
  - Invest in safe and open digital public infrastructure and expand affordable broadband to harness AI opportunities for productivity gains.

### INTERNATIONAL SUPPORT, FINANCING, AND DEBT MANAGEMENT
- Role of international support:
  - Continued strong and coordinated external support—grants, concessional loans, and CD—is critical to invest in growth-enhancing sectors while preserving debt sustainability, particularly for LICs and FCS.
- IMF and MDB engagement:
  - Since 2020, the IMF has provided financing amounting to more than US$95 billion to the African region, much at concessional terms.
  - Twenty-seven out of 54 African member countries have ongoing IMF financing arrangements, with over US$2.5 billion disbursed so far this year.
  - Recent IMF reforms include reform of the PRGT facilities, review of charges and the surcharge policy, and review of access limits under the GRA.
  - The World Bank concluded the 21st replenishment of IDA and is implementing its new strategy; other MDBs are increasing support.
- Mobilizing private finance and capacity development:
  - Official resources will likely be insufficient; mobilizing private finance is key for development and climate resilience.
  - Countries should implement sound macroeconomic policies, promote stability, create enabling conditions for FDI, and strengthen transparency to crowd-in private finance.
  - Develop risk-sharing instruments to crowd-in private finance where appropriate and ensure private debt pace is consistent with debt sustainability.
  - Expand CD while prioritizing, tailoring, sequencing, and coordinating to align with country objectives and avoid duplication; example: Joint Domestic Resource Mobilization Initiative (JDRMI).
- Debt challenges and the Three‑Pillar Approach:
  - Debt levels remain high; increasing interest payments and redemptions squeeze capacity for development spending.
  - Some countries will need debt restructuring; most need recurrent flows of new and affordable financing.
  - The IMF and World Bank’s joint Three‑Pillar Approach:
    - Pillar I: Structural reforms and domestic resource mobilization (technical assistance, CD, policy advice).
    - Pillar II: Mobilizing external financial support (concessional loans and grants aligned with reform agendas).
    - Pillar III: Reducing debt servicing burdens through risk‑sharing instruments, liability management operations, and guarantees.
  - Progress includes granular mapping of debt vulnerabilities in 136 EMDEs and early lessons from Joint DRM Initiative and debt swaps (example cited: Côte d’Ivoire in December 2024).

### DOWNSIDE SCENARIO FOR SUB-SAHARAN AFRICA (AFRMOD SIMULATIONS)
- Scenario design highlights:
  - Shock elements: rise in uncertainty, lower commodity prices (largest for oil), and higher borrowing costs affecting SSA.
  - Policy uncertainty shock set to a three-standard deviation increase in the Davis (2016) global economic policy measure (50 percent larger than the 2018–19 spike).
  - Financial tightening assumptions:
    - Increase of 50 bp in sovereign premia for all EMs (except China) and of 100 bp for SSA countries.
    - Increase in corporate risk premia of 25 bp for AEs and China and 100 bp for all other countries.
    - Tighter financial conditions last for two years.
- Model outcomes (relative to reference projections):
  - Over 2025–26, GDP in sub-Saharan Africa would be lower by about 2 percent.
  - Over the medium term, the level of GDP would still be lower by about 1 percent as the shock dissipates.
  - Oil exporters could see GDP lower by up to 3 percentage points over the medium term.
  - Headline inflation would ease by about 2 percentage points by 2026 due to lower growth and commodity prices outweighing depreciation effects.

*G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA, INTERNATIONAL MONETARY FUND.*

### EXECUTIVE SUMMARY __________________________________________________________________________ 3

### G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA

### EXECUTIVE SUMMARY
- Africa has significant potential from a young population and natural resources but successive shocks have eroded buffers and exposed vulnerabilities.
- A nascent recovery and gradual improvements in macroeconomic imbalances are at risk from renewed global trade disruptions, shifting ODA priorities, and heightened uncertainty.
- Low-income African countries with high public debt levels, stubborn inflation, large external deficits, and thin foreign reserve buffers are particularly vulnerable.
- Policy priorities emphasized:
  - Fiscal consolidation—including improving efficiency of public spending and domestic revenue mobilization, while protecting vulnerable groups—to rebuild buffers and safeguard debt sustainability.
  - Monetary policy focused on price stability, supported by credible frameworks and sound financial and external sector policies.
  - Growth-enhancing structural reforms to improve the business environment, strengthen governance, support job creation, and improve education, health, technological adoption, and trade integration.
- Continued international support—concessional financing, capacity development, and debt restructuring where needed—and international cooperation to address climate change and support global trade remain critical.

*Prepared by an African Department team; prepared based on information available as of May 31, 2025.*

### INTRODUCTION
- Demographic and resource opportunities:
  - By 2030, 60 percent of all new entrants into the global labor force will come from Africa.
  - By 2050, Africa will be home to a quarter of the world’s population.
  - Sub-Saharan Africa accounts for 30 percent of the world’s critical minerals (IMF 2024a).
- Successive shocks have reduced policy space and worsened outcomes:
  - Average real per capita incomes are lower by nearly 7 percentage points compared to the pre-pandemic trend.
  - Poverty: a quarter of the population living on less than $2.15 per day and nearly 170 million people still classified as severely food insecure.
- Objective: summarize recent developments and outlook, discuss macroeconomic and structural vulnerabilities, and draw policy lessons relevant for EMDEs.

### RECENT DEVELOPMENTS AND OUTLOOK

#### A. A Nascent Recovery
- Regional growth and heterogeneity:
  - Regional growth broadly stable at 3.2 percent in 2024.
  - Sub-Saharan Africa (SSA) growth picked up to 4 percent in 2024 (from 3.6 percent in 2023).
  - North Africa growth declined to 1.9 percent in 2024 (from 2.9 percent in 2023).
  - Egypt grew at 4.2 percent year-on-year in Q4 2024 (fastest since Q3 2022).
  - Resource-intensive African countries: growth 2.7 percent versus 3.8 percent in non-resource counterparts.
- Inflation trends:
  - Median headline inflation declined to 4.5 percent year over year as of February 2025 (from 6.3 percent at end-2023 and nearly 10 percent at end-2022).
  - Oil prices: fell by 16 percent in 2023 and by a further 2 percent in 2024.
  - Median food-price inflation dropped from a peak of 14 percent in February 2023 to below 6 percent as of February 2025.
- Fiscal and public debt:
  - Median primary balance improved by 0.8 and 0.2 percentage points of GDP in 2023 and 2024, respectively.
  - Median debt-to-GDP ratio edged down to 57.1 percent of GDP in 2024 (from 57.5 percent in 2023).
  - Eight countries tapped international bond markets in 2024 with total issuances exceeding $14 billion.
  - Six countries (Benin, Côte d’Ivoire, Gabon, Kenya, Egypt, and Morocco) issued foreign currency denominated sovereign bonds in 2025Q1.
- External sector:
  - Regional median current account deficit broadly stable at 4.2 percent of GDP in 2024 (1 percentage point of GDP better than in 2022).
  - Reserves: median country reserves 3.9 months of imports at end-2024 (from 3.7 at end-2023).
  - More than half of countries saw current account improvements in 2024; ten countries improved by more than 2 percent of GDP.

#### B. Outlook Clouded by Risks and Uncertainty
- Growth revisions:
  - Under the April 2025 WEO reference forecast, growth projected at 3.9 and 4.1 percent in 2025 and 2026, respectively (compared to 4.2 and 4.4 percent projected in October 2024).
- Trade shock exposure:
  - Direct exposure of African exporters to US tariffs generally limited (less than 1 percent of GDP), but disproportionately larger for some small, vulnerable countries (e.g., Lesotho, Madagascar).
  - Indirect impacts via softer global demand and lower commodity prices, especially oil.
- Inflation and financial conditions risk:
  - Median inflation expected to moderate to 4.1 percent in 2025, but some countries could experience a resurgence of inflation due to exchange rate pressures.
  - Persistent inflation could raise interest rates in advanced economies, discourage capital flows to Africa, tighten global financial conditions, and pressure exchange rates and reserves.
- Downside scenario:
  - A scenario combining higher uncertainty, higher borrowing costs, and lower commodity prices for SSA suggests output could be lower by 2 percent in 2025–26, with larger losses for oil exporters.
- ODA disruptions:
  - US disbursements average around 0.5 percent of GDP for the region but are targeted and significant for individual countries (Central African Republic, Democratic Republic of Congo, Lesotho, South Sudan).
  - From the top 20 most exposed countries in sub-Saharan Africa, a suspension of US assistance could boost median funding needs by up to 1.2 percent of GDP for the budget and 1.2 percentage points for the balance of payments, depending on substitution by authorities.

### MACROECONOMIC AND STRUCTURAL VULNERABILITIES
- Prevalence of imbalances:
  - More than 40 percent of the 54 African countries exhibit two or more of these imbalances:
    1. primary balance below the debt-stabilizing level;
    2. a double-digit current account deficit;
    3. reserves below 3 months of imports;
    4. double-digit inflation;
    5. an interest-to-revenue ratio of more than 20 percent.
  - Among the 39 African LICs, the share with two or more imbalances rises to more than half.
  - Out of 13 countries with double-digit inflation at end-2024, six also had interest-to-revenue ratios above 20 percent.
  - About one in five countries in the region (and one in four LICs) experience three or more imbalances simultaneously.
- Renewed trade tensions and ODA disruptions compound structural vulnerabilities, worsening imbalances and limiting response capacity.

### A. Fiscal Imbalances
- Debt distress and systemic risk:
  - Over half of African LICs are assessed at high risk of, or already experiencing, debt distress under the IMF/World Bank LIC-DSF; this share has been declining since 2021.
  - The likelihood of a broad-based debt crisis is currently deemed contained, but uncertainties and risks to the baseline have increased.
- Rising debt service and refinancing needs:
  - Interest payments on public debt have risen sharply over the past decade:
    - For non-LICs: doubled from 5 to 10 percent of revenue.
    - For LICs: tripled from 3 to 10 percent of revenues.
  - External principal payments reached an estimated US$55 billion in 2024 (1.9 percent of the region’s GDP), nearly half due from LICs.
  - Repayments set to increase to US$62 billion in 2025 (2.2 percent of GDP).
  - Over the next three years, repayments to private creditors will average about US$27 billion a year (a little less than half of upcoming amortizations).
- Market borrowing and yields:
  - Market-access African countries saw yields jump roughly five times more over the last three years than U.S. and German 10-year benchmarks; average rise in yields around 500 bps.
  - Distressed sovereigns (e.g., Ghana and Zambia) saw yields rise to above 20 percent; stronger-position countries (e.g., Cote-d’Ivoire, South Africa) experienced increases of 300–400 bps.
  - The “African risk premium” is about 50 basis points in normal times but tends to double during periods of stress.
- Domestic revenue constraints:
  - Government revenues averaged 19 percent of GDP during 2022–24.
  - Comparisons:
    - EMDEs average: 28 percent of GDP.
    - Advanced economies (AEs): 41 percent of GDP.
  - Median revenue-to-GDP ratio for African LICs: around 17 percent; for the rest of Africa: 23 percent.
  - Low growth and widespread informality, especially in SSA, hinder tax-base expansion.
- Bank exposure to sovereign risk:
  - Increased reliance on domestic markets has led to higher domestic interest rates, shorter maturities, and greater bank balance-sheet exposure to the public sector—exposure is significantly higher in Africa than elsewhere.

*Prepared by an African Department team; prepared based on information available as of May 31, 2025.*

### 14.      Despite progress at the aggregate regional level, several countries are still struggling

### g20-background-note-on-macroeconomic-vulnerabilities-in-africa - 14.      Despite progress at the aggregate regional level, several countries are still struggling

### Inflation and monetary frameworks
- Thirteen countries are facing inflation in the double digits, eight of which are LICs (G20 Background Note on Macroeconomic Vulnerabilities in Africa, IMF).
- Inflation has been particularly entrenched in SSA countries where authorities target monetary aggregates de facto, including Angola, Burundi, and Nigeria.
- In these countries, monetary authorities have typically had less help from fiscal adjustment; in some cases, governments resorted to borrowing from the central bank (Angola, Burundi, Malawi).
- Monetary financing increases inflation persistence and exchange rate pressures (Hooley and others, 2021).
- North Africa experienced an inflation spike in 2023 driven by global food- and fuel-price shocks and sharp currency pressures (Egypt and Tunisia).
- Supply shocks related to conflicts and foreign exchange disruptions kept inflation above historical averages in some countries (Somalia, Sudan).
- IMF staff analysis (IMF, 2025b) finds that, on average across all LICs, a one percentage point improvement in fiscal balances translates into a reduction in the current account deficit of half a percentage point.

### External imbalances and current account positions
- Nine African countries (8 LICs) had double digit current account deficits in 2024.
- Of 40 African countries with IMF external assessments during 2022–24, 17 (of which 12 LICs) were assessed to have an external position that is either weaker or substantially weaker than implied by fundamentals and desirable policies.
- External deficits were often associated with fiscal deficits, producing “twin deficits.”
- African LICs registered an average current account deficit of 5.4 percent of GDP coupled with an average fiscal deficit of 3.2 percent of GDP in 2024.

### Net financial flows, ODA, and external financing
- FDI inflows into the region averaged about 2.2 percent of GDP in the past four years.
- Net portfolio inflows to the rest of Africa are negligible, except for some Eurobond issuances by frontier markets in 2024.
- Other investment net inflows to the region turned negative in 2024.
- Gross ODA flows declined by about 15 percent during 2020-23, reaching $68.2 billion in constant dollar terms.
- By contrast, ODA to non-African countries increased by 44.6 percent to $ 190.5 billion in 2023.
- Transfers to Africa through multilateral donors declined by 23.7 percent to $31 billion in 2023.
- Flows from bilateral donors decreased by 6 percent to $37.2 billion in 2023.
- Multilateral organizations, including EU institutions and the US, provided about three-quarters of the region’s ODA flows in 2023; the World Bank provided close to a half of the region’s multilateral flows in 2023.

### Foreign exchange reserves and import coverage
- Fifteen African countries, of which 14 LICs, had reserve cover of less than 3 months of imports at end-2024.
- Median FX reserves in African LICs dropped to 2.6 months of imports at end-2024, from 3.1 months at end-2022.
- Exchange rate interventions in support of LICs’ domestic currencies contributed to declining reserve coverage.

### Structural vulnerabilities: climate, conflict, infrastructure, and institutions
- Climate and natural disasters:
  - In 2022, Africa experienced 80 climate-, weather- and water-related disasters, directly affecting more than 110 million people and causing economic losses of just over US $8.5 billion (World Meteorological Organization, 2023).
  - FCS suffer more severe and persistent GDP losses from climate shocks, amplifying impacts in agriculture (Jaramillo et al, 2023).
- Political instability and conflict:
  - Since the start of the conflict in Sudan in April 2023, refugee flows into neighboring countries have amounted to over 3 .9 million as of May 19, 2025, straining resources in countries such as the Central African Republic, Chad, and South Sudan.
  - Conflict spillovers can elevate inflation, government spending, and debt levels (Abdel-Latif et al, 2024).
- Infrastructure deficits:
  - In African LICs, less than half of the population had access to electricity in 2023.
  - A quarter of Africa’s population lacked basic drinking-water services in 2022 (WHO/UNICEF, 2023).
- Informality and labor markets:
  - More than 80 percent of total employment across the continent was estimated to be informal in 2023, with 86 percent in SSA and 63 percent in North Africa (ILOSTAT, 2025).
  - Labor productivity in the informal sector is less than one-quarter that of formal firms (World Bank, 2019).
- Financial access:
  - Domestic credit to the private sector is estimated around 33 percent of GDP in Africa, compared with 46 percent in South Asia and 148 percent in the OECD (World Bank WDI, 2025).
  - Only about half of African adults have a formal bank account, compared to an average of 71 percent for developing economies (Global Findex, 2021).
  - Sub-Saharan Africa is home to three quarters of the world’s mobile money accounts (GSMA, 2024).
- Export concentration:
  - The median share of commodities in African export earnings is 90 percent, versus the global average of 29 percent, leaving countries exposed to price and terms-of-trade shocks.
- Institutions, governance, and corruption:
  - Africa remains the weakest-scoring region on most governance and institutional quality metrics; corruption and weak governance are associated with lower investment, reduced tax collection, and slower growth (IMF, 2018; IMF, 2024b).
- AI preparedness:
  - The IMF’s AI Preparedness Index (AIPI) places Africa (SSA and North Africa) around 34, the lowest among all regions; the global mean is 48.
  - Mauritius, the Seychelles, and South Africa score 53, 53, and 50 respectively on the AIPI.
  - Without enhancing AI preparedness, IMF research suggests AI may exacerbate cross-country income inequality (Cerutti et al., 2025); conversely, AI learning tools could support education given teacher shortages (Mendes Tavares, 2025).

### Domestic policy priorities and fiscal policy recommendations
- Overarching objective:
  - Restore macroeconomic stability by reducing imbalances while easing trade-offs with long-term growth and social goals; policies must be tailored to country circumstances with contingency planning and clear communication.
- Fiscal policy: prudent consolidation while protecting vulnerable groups
  - Continue fiscal consolidation through high-quality reforms, front-loaded where adjustment needs are high and financing is limited.
  - Protect vulnerable groups via targeted transfers and strengthened social safety nets.
  - Use clear communication, early stakeholder engagement, transparency, and anti-corruption efforts to build public trust and support for adjustment.
- Improving spending efficiency:
  - Remove inefficient fuel subsidies that disproportionately benefit the rich and reallocate savings to targeted development spending.
  - Reduce losses from inefficient public infrastructure allocation (estimated at 30–40 percent in developing countries) through better governance, strengthened public financial management, and transparent project selection.
  - Improve efficiency of public health and education spending; digitalization can boost fiscal transparency and efficiency (Amaglobeli and others, 2023).
  - Reform SOEs via better financial monitoring, management, oversight, and transparency to reduce fiscal risks.
- Raising revenues:
  - Broaden the tax base, increase tax rates where appropriate, reduce arbitrary exemptions, and simplify the tax code.
  - Emphasize predictable and progressive taxation, with greater focus on corporate income and property tax collection.
  - Strengthen tax collection capacity, integrity, and accountability, including through digitalization.
- Strengthening debt management and local debt markets:
  - Improve institutions, debt transparency, debt management, and debtor-investor relations to increase debt-carrying capacity and lower borrowing costs.
  - Develop local debt markets and widen the investor base, while remaining vigilant about public domestic debt vulnerabilities and sovereign-bank nexus risks.

*G20 Background Note on Macroeconomic Vulnerabilities in Africa (International Monetary Fund).*

### 23.      Contingency planning and strong fiscal frameworks are equally important. Beyond

### G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA

### Contingency planning and fiscal frameworks
- Pre-emptive contingency planning for trade, spending, or funding shocks can allow for a more agile response.
- Medium-term fiscal frameworks:
  - Support fiscal planning and ensure consistency with other policy elements.
  - Boost credibility, anchor expectations, and reduce the volatility of funding flows.
- Resource-intensive countries: fiscal frameworks that accumulate buffers to provide a realistic level of insurance against shocks can be an effective strategy (Eyraud, Gbohoui, and Medas 2023).
- Avoid accumulating arrears because they:
  - Increase the cost of public service delivery.
  - Reduce the credibility of fiscal policy.
  - Act as an unpredictable tax on affected suppliers, adding to uncertainty.

*Source: G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA (IMF).*

### Monetary, exchange rate, and financial policies
- Monetary policy guidance:
  - Continue to focus on maintaining price stability, remaining flexible and data dependent.
  - Where inflationary pressures remain high, central banks should keep a tight monetary policy stance.
  - Where inflationary pressures are low and inflation is within target, central banks can consider easing the monetary stance to support growth.
  - Authorities should remain cautious and be ready to reverse course if unexpected shocks occur, including exchange rate pressures that can de-anchor inflation expectations.
  - Preserve central bank independence and coherent, credible monetary policy frameworks with clear targets, emphasizing communication and transparency to better anchor expectations and contain inflation.
- International reserves and exchange rate management:
  - Adequate international reserve buffers are especially important in the current environment to help economies recover more quickly from unexpected shocks and boost confidence.
  - In line with the IMF’s Integrated Policy Framework (IMF 2023c), foreign exchange interventions can be used to limit the impact of short-term exchange-rate volatility in countries with shallow financial markets and less-well anchored inflation expectations, but such interventions should not substitute for needed macroeconomic adjustment.
  - If external shocks are large and persistent, or reserve levels are limited, non-pegged countries should let the exchange rate adjust.
  - For pegged countries, stability requires adjusting the policy mix (including fiscal policy) to sustain the peg.
  - Strengthened regional payment arrangements, including allowing for settlement in local currencies, can soften demand for foreign exchange; the Pan-African Payment and Settlement System is cited as important for operationalizing the African Continental Free Trade Agreement.
- Financial stability and deepening:
  - Ensure banks remain well capitalized, liquid, and profitable; monitor non-performing assets carefully.
  - Strengthen regulatory and supervisory frameworks for banks, safety nets, and interbank liquidity markets to safeguard financial stability and promote sustainable private-sector credit.
  - Monitor risks from bank exposures to sovereign risk.
  - Structural reforms to deepen domestic financial and capital markets and boost banking sector competitiveness can support stability and the effectiveness of monetary policy.
  - Enhance financial deepening via legal frameworks for secured transactions, infrastructure for credit registries, promotion of mobile banking, microfinance, and financial literacy to improve SME access to finance.
  - Authorities should monitor risks from crypto assets.

*Source: G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA (IMF).*

### Structural reforms
- Rationale:
  - Ambitious, well-designed, and sequenced macro-structural reforms can significantly boost output and employment (Budina et al, 2023).
  - Reform payoffs are larger when packaged and focused on the most binding constraints.
  - A package focused on business environment, governance, and external sector reforms can lift GDP by 8 percent in four years in countries with substantial structural gaps relative to the frontier; subsequent labor and credit market reforms can maximize employment gains.
  - Higher growth facilitates macroeconomic adjustment efforts and improves debt dynamics.
  - Clear communication and mitigating measures for vulnerable groups help foster social and political support.
- Priority reform areas:
  - Business environment:
    - Streamline regulatory requirements, reduce bureaucratic burdens, and strengthen predictability and transparency of regulations to promote private investment and growth.
    - Foster fair competition practices to facilitate firm entry and employment.
  - External sector and infrastructure:
    - Greater regional trade integration through AfCFTA implementation to create bigger markets, integrate regional supply chains, boost local and foreign investment, and reduce trade policy uncertainty (ElGanainy and others, 2023).
    - Expand and improve infrastructure networks (transportation and power) to support domestic activity and regional trade integration.
    - Maintain macroeconomic stability, invest in human capital, promote competition, and use well-designed vertical policies to address market failures (Delechat et al, 2024).
    - Develop domestic capacity in mining and processing of critical minerals, encourage FDI, and ensure foreign firms are integrated with local value chains (IMF 2024a).
  - Labor market and human capital:
    - Enhance labor-market participation and job creation, especially for women and youth, via improved ALMPs, job-matching services, training, re-engaging long-term unemployed, enforcing non-discrimination policies, and facilitating childcare.
    - Improve education, vocational training, apprenticeships, and health systems; invest in skills demanded by knowledge-based economies.
    - Where necessary, streamline employment protection legislation and consider collective bargaining reforms to provide flexibility to firms, particularly SMEs.
  - Institutions and governance:
    - Tailor reforms to country circumstances, including professional civil service based on merit; strengthen anti-corruption laws and agencies; increase transparency and independent external scrutiny; focus on corruption “hotspots” such as public procurement, infrastructure, natural resources, taxation, and public enterprises (IMF, 2019).
    - Prioritize publication of reliable economic data and adherence to Extractive Industries Transparency Initiative standards as applicable.
    - Strengthen rule of law, property rights, contract enforcement, and judicial independence and integrity.
  - Digitalization and AI:
    - Invest in safe and open digital public infrastructure (e.g. digital ID, payment systems, data sharing) and expand affordable broadband.
    - Digitalization plus basic education enables use of AI opportunities for productivity advancement.

*Source: G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA (IMF).*

### International support, financing, and debt challenges
- Role of international support:
  - Developing economies need continued strong and coordinated external support—financial assistance, especially grants and concessional loans, is critical to help invest in growth-enhancing sectors while preserving debt sustainability, particularly for LICs and FCS.
  - Well-sequenced and coordinated capacity development (CD) is important to strengthen institutional capacity.
- Financing and concessional support:
  - Since 2020, the IMF has provided financing amounting to more than US$95 billion to the African region, much of it at highly concessional terms.
  - Twenty-seven out of 54 African member countries have ongoing IMF financing arrangements, with over US$2.5 billion disbursed so far this year.
  - Recent IMF reforms include reform of the Poverty Reduction and Growth Trust (PRGT) facilities and financing, review of charges and the surcharge policy, and review of access limits under the General Resource Account (GRA).
  - The World Bank concluded the 21st replenishment of IDA and is implementing its new “A Future-Ready World Bank Group” strategy; other MDBs are increasing support.
  - Bilateral donors should consider grants and loans at affordable rates with sufficiently long maturities and grace periods and aim to maintain collective exposure to countries implementing robust domestic reform agendas with IMF-supported programs.
- Mobilizing private finance:
  - Official resources will likely be insufficient; mobilizing private finance is key for development and climate resilience.
  - Developing countries should implement sound macroeconomic policies, promote macroeconomic and financial stability, create enabling conditions for growth and higher FDI, and strengthen transparency and governance to crowd-in private finance.
  - The international community should develop risk-sharing instruments to crowd-in private finance where appropriate.
  - Given higher costs of private finance, private debt should be incurred at a pace consistent with debt sustainability.
- Capacity development (CD):
  - Expand CD while improving prioritization, tailoring, sequencing, and coordination to align with countries’ developmental objectives and avoid duplication or overburdening recipient authorities.
  - Example: the Joint Domestic Resource Mobilization Initiative (JDRMI) by IMF and WB to help raise public revenues and mobilize private savings through coordinated CD.
- Addressing debt challenges:
  - Debt levels remain high and downside risks have increased, but debt stocks remain manageable for most countries and are well below levels at the onset of the HIPC Initiative.
  - Increasing interest payments and high debt redemptions are squeezing capacity to finance essential development spending.
  - Most developing countries need recurrent flows of new and affordable financing; in some cases debt restructuring may be necessary.
  - Recommended approach:
    - Improve restructuring processes to ensure countries with unsustainable debt access timely and sufficiently deep debt relief; progress has been made in the past two years, including under the G20 Common Framework and the Global Sovereign Debt Roundtable (GSDR), but further progress is needed.
    - Accelerate implementation of a robust “pathway” for countries whose debt is sustainable but face high debt service crowding out productive spending: robust domestic reforms, strong external support from bilateral and multilateral partners, and efforts to crowd-in private sector financing at affordable costs.
    - The “3-Pillar Approach” proposed by the IMF and WB provides the conceptual framework for this pathway and will be implemented flexibly based on country specificities, including with CD support.

*Source: G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA (IMF).*

### Downside scenario for Sub-Saharan Africa (AFRMOD model simulations)
- Scenario design (AFRMOD, module of the Flexible System of Global Models):
  - Focuses on a rise in uncertainty, lower commodity prices, and higher borrowing costs affecting sub-Saharan Africa.
  - Trade policy uncertainty deepens; divergence among China, Euro Area, United States becomes more marked; global financial conditions tighten.
  - Policy uncertainty shock is equivalent to a three-standard deviation increase in the Davis (2016) global economic policy measure, 50 percent larger than the 2018–19 spike.
  - Decline in commodity prices is largest for oil, followed by metals and food.
  - Tighter financial conditions layer:
    - Increase of 50 bp in sovereign premia for all EMs (except China) and of 100 bp for SSA countries.
    - Increase in corporate risk premia of 25 bp for AEs and China and 100 bp for all other countries.
    - Decline in global asset prices.
  - Tighter financial conditions last for two years.
- Model results (relative to current reference-point projections):
  - Over 2025–26, GDP in sub-Saharan Africa would be lower by about 2 percent, owing to weaker external demand, investment uncertainty, and tighter financing conditions.
  - Over the medium-term, as the shock dissipates, the level of GDP will still be lower by about 1 percent.
  - Negative effects larger and more persistent for oil exporters, for which GDP could be lower by up to 3 percentage points over the medium term.
  - Lower growth and commodity prices would reduce inflationary pressures—outweighing the impact of further depreciation on prices—and would prompt headline inflation to ease by about 2 percentage points by 2026.

*Source: G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA (IMF).*

*Italic: G20 BACKGROUND NOTE ON MACROECONOMIC VULNERABILITIES IN AFRICA, INTERNATIONAL MONETARY FUND.*

### Box 2. The Three-Pillar Approach Proposed by the IMF and World Bank

### Box 2. The Three-Pillar Approach Proposed by the IMF and World Bank

### Objective and overall design
- The IMF and World Bank’s joint 3‑pillar approach aims to support LICs and vulnerable EMs in addressing debt service challenges through a comprehensive “pathway” to development.
- The approach distinguishes between countries with unsustainable debt—where improved debt restructuring processes are essential—and other countries where managing debt service burdens is the focus.
- The three pillars together seek to boost growth, mobilize resources, secure external support while reforms take hold, and reduce debt servicing burdens where needed.

### Pillar I — Structural reforms and domestic resource mobilization
- Focus: structural reforms to boost growth and job creation, increase the efficiency of spending, and mobilize domestic resources.
- Support modalities: technical assistance, CD, and policy advice.
- Key elements:
  - Enhance fiscal policies and the quality and effectiveness of institutions.
  - Strengthen the business environment to foster the domestic private sector and foreign direct investment.
  - Develop domestic financial markets to enhance access to financing.
- Initiative: The joint IMF‑World Bank Domestic Resource Mobilization Initiative (IMF and WB, 2024) has been launched to help countries increase public revenues, improve the efficiency of public spending, and strengthen domestic financial markets.
- Cautionary guidance:
  - Policymakers should not use development of domestic financial markets as an opportunity to relax fiscal discipline.
  - Policymakers should remain vigilant about public domestic debt vulnerabilities.
- Implementation emphasis: prioritize and sequence structural reforms to accelerate growth and create jobs, improve governance, tackle corruption, and support structural transitions, mindful of social and political feasibility.
- Governance note: Strong country ownership is crucial for successful implementation.

### Pillar II — Mobilizing external financial support
- Focus: foster external financial support, including from IFIs, because structural reforms and resource mobilization will take time to deliver results.
- Rationale: mobilizing sufficient international support is key to help countries meet financing needs and provide net positive flows, particularly in LICs.
- Forms of support: provision of concessional loans and grants from bilateral and multilateral partners.
- Conditionality and alignment: support should be consistent with the strength and ambition of the domestic reform agenda and with the needs of the country.
- Role of IMF and World Bank: act as important parts of the collective effort, including through a catalytic role.
- Bilateral creditor guidance: for countries engaged in a Fund‑supported program, official bilateral creditors should endeavor to maintain, where feasible, their exposures throughout the program period.

### Pillar III — Reducing debt servicing burdens
- Focus: reduce debt servicing burdens using appropriate instruments and operations.
- Tools and instruments:
  - Use, where relevant, risk‑sharing instruments to incentivize new or higher inflows from private creditors at affordable costs.
  - Liability management operations such as debt‑for‑development swaps and debt buy‑back.
  - The World Bank guarantee platform can support some of these efforts.

### Progress toward operationalizing the 3‑pillar approach
- Granular mapping:
  - A granular “mapping” of debt vulnerabilities in 136 EMDEs to better understand the different situations faced by developing countries.
- Tool development and lessons:
  - Deeper reflection on the “tools” for the situations highlighted by the granular mapping, including early lessons from implementation of the Joint DRM Initiative and from recent debt swap operations (example: Cote d’Ivoire in December 2024, supported by the WB).
- Combinations of tools:
  - Further work on how different “tools” (e.g., DRM, liability management operations) can be used in combination for certain countries where such combinations would be particularly relevant.
  - This includes clarifying the role that official bilateral creditors can play as part of the overall effort.
- Applicability note:
  - The mentioned “tools” are available and used in practice in many countries well beyond those facing debt service challenges.
  - Using these “tools” does not necessarily mean a country is faced with debt service challenges; conversely, countries with such challenges can use part or all of these “tools” to address their challenges.

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_Source: https://www.imf.org/-/media/files/research/imf-and-g20/2025/g20-background-note-on-macroeconomic-vulnerabilities-in-africa.pdf_