African Consultative Group Meeting: Statement by the Chairman of the African Caucus and the Managing Director of the IMF

IMF News, April 16, 2023

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Multiple external shocks continue to affect African countries: the impact of the war in Ukraine (pushing up international food and fuel prices); tighter monetary and financial conditions combined with financial sector turbulence; increasingly severe climate-related events; and widening global tensions that increase risks of fragmentation.
These shocks follow the COVID-19 pandemic, which had already reduced fiscal and external buffers and caused scarring effects on many African countries.
Resulting pressures include exchange rate depreciation, higher global interest rates, and elevated sovereign spreads, making financing more expensive or unaffordable.
Declining foreign aid budgets and lower investment flows are contributing to a "severe financing squeeze."

The public debt-to-GDP ratio is now on average for the region above 60 percent, a level last seen in the early 2000s, raising concerns about debt sustainability in many countries.
Nearly two-thirds of the region’s low-income countries were at high risk or already in debt distress in 2022.
The impact of multiple crises, slower economic growth, and exchange rate depreciation is widening fiscal deficits in many countries and compounding pre-existing vulnerabilities.

The Group reiterated the need to address rising debt vulnerabilities and to continue strengthening the international debt resolution architecture, including by improving the Common Framework for debt treatments.
The IMF continues to explore ways to make debt resolution more efficient.
The IMF, together with the World Bank and the India G20 Presidency, have launched a Global Sovereign Debt Roundtable.

Strengthening social protection is critical to promote higher and more inclusive growth by improving education and health outcomes, enhancing human capital and labor market productivity, and encouraging vulnerable households to invest in income-generating activities.
Leveraging digital infrastructure, such as mobile phone platforms, can increase efficiency and ensure social support is well targeted to the most vulnerable.

Building resilience, including to climate change, remains fundamental in a shock-prone environment.
There are large financing gaps to meet climate adaptation needs; it is imperative to unlock concessional climate finance and attract private climate finance.
Green bonds are identified as a potentially useful tool.
The Group discussed unique challenges faced by Small Developing States, including climate change and economic diversification constraints.

Governments in the region, the international community, and the private sector should work cooperatively to respond to the region’s challenges.
Increasing fiscal space in a growth-friendly way would create room for social and infrastructure expenditure.
Mobilizing additional external financing to support the recovery is critical.
Deepening domestic financial markets, strengthening regional integration, reducing trade and cross-border barriers, and leveraging the opportunities offered by the African Continental Free Trade Area (AFCTA) would help build resilience to external shocks.
Improving the quality of institutions is necessary to close infrastructure gaps.

The IMF remains committed to the region and seeks to ensure its concessional lending toolkit for low-income countries is flexible, effective, and well resourced.
The Resilience and Sustainability Trust is now operational, providing longer-term affordable financing to address longer-term challenges, including climate change and pandemic preparedness. Rwanda was one of the first beneficiaries, with several other countries in the pipeline.
The recently launched Food Shock Window is providing emergency financing to countries facing urgent balance of payments needs related to the global food crisis; four countries from the region have so far benefited from it.
There is an urgent need to replenish the Poverty Reduction and Growth Trust and put it on a sustainable footing—a key goal for the Annual Meetings.
The IMF continues to provide significant capacity development to its African members to help preserve macroeconomic and financial stability and build economic resilience.

Source: African Consultative Group Meeting: Statement by the Chairman of the African Caucus and the Managing Director of the IMF, April 16, 2023.