Africa should increase development spending to boost economic recovery

On the back of multiple crises to hit African economies, governments should increase development spending to stimulate fast and sustained recovery, the Economic Commission for Africa (ECA) has urged.

Launching the World Economic Situation and Prospects 2023 (WESP) report in Addis Ababa this week, Mr. Adam Elhiraika, Director of the Macroeconomics and Governance Division (MGD) of the ECA, said African countries have been affected by multiple crises and need to increase spending for a fast recovery.

“Africa is confronted with weaker external demand and elevated energy and food prices in addition to rapidly increasing borrowing costs and adverse world events,” Mr. Elhiraika said, echoing the findings of the WESP report indicating that growth in Africa is projected to slow down to 3.8 percent in 2022 from a projected 4.1 percent at the beginning of 2022.

Mr. Elhiraika said the world continues to be confronted by multiple, inter-connected crises amid a slow recovery from the impact of the COVID-19 pandemic.

The WESP report underscores the need for supportive and accommodative fiscal measures to lift growth and accelerate progress towards the SDGs.

The report also emphasizes the need for governments to take a strategic approach in redirecting public expenditure towards sectors with high fiscal multipliers and better targeting vulnerable groups, Mr. Elhiraika said.

“In addition to supporting short term public demand, public investment can stimulate capital formation and expand productive capacities and lift potential growth… as growth improves this can help countries confront the debt sustainability problem,” said  Mr. Elhiraika.

The WESP is an annual flagship publication produced by the UN Department of Economic and Social Affairs (DESA) in collaboration with the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations Regional Commissions. The launch was organized by the Macroeconomics and Governance Division (MGD) of ECA, following the official launch of the report on 25 January 2023 in New York by DESA.

Ms. Lee Everts, Chief of Macroeconomic Analysis Section, said the WESP is of particular importance to Africa as the world confronts multiple and interconnected shocks.

“In the midst of sluggish recovery from the effects of COVID 19 , the world is facing food and energy crisis aggravated by the Ukraine War as well as the cost of living crisis caused by record inflation,” Ms. Everts said, noting that consistent and interconnected shocks are deepening and widening poverty and inequality and threaten to reverse two decades of progress made in countering them.

“Poverty in Africa is dynamic and transient, it means that poorer households can move in and out of poverty much quicker when there are these external shocks happening,” Ms. Everts noted.

The WESP 2023 report reveals that the prognosis remains uncertain, with the global economy forecast to grow at 1.9 per cent in 2023, down from 3.0 per cent in 2022. This is one of the lowest rates in recent decades and the slowdown cuts across both developed and emerging nations, with several countries facing the possibility of a moderate recession in 2023.

Economic growth in Africa (excluding Libya) is estimated to weaken to 3.8 per cent in 2023 from 4.1 per cent in 2022.  As for sub-regional trends, growth is forecast to edge up in West Africa, stabilize in Central and East Africa, decelerate in North and Southern Africa.  In 2023, growth is forecast to be 4.1 per cent in North Africa, 5.1 per cent in East Africa, 3.4 per cent in Central Africa, 3.8 per cent in West Africa and 2.3 per cent in Southern Africa.

However, there are severe downside risks to the forecast, as an escalation of the war in Ukraine and extended disruption to grain exports from Russia and Ukraine may cause additional inflationary pressures on food and energy prices, increasing the risk to food security.

Persistently high global inflation may force tight monetary stances in most countries, and the resulting deceleration of global growth may stagnate the demand for African exports, particularly as some of Africa’s main trading partners, such as the European Union which is  expected to go into a mild recession in 2023.

Given higher interest rates, weaker exchange rates and lower capital inflows, a number of African countries will face challenges in servicing and rolling over their hard-currency-denominated external debt, Ms. Everts said

The WESP report underscores the imperative of supportive and accommodative fiscal measures to lift growth and accelerate progress towards achieving the Sustainable Development Goals.