Africa-Press – Angola. The latest International Monetary Fund (IMF) report for October 2024 has indicated that both domestic and external financing conditions across Africa remain stringent, making it difficult for many nations to secure the necessary funds for economic stability and growth.
As highlighted in the report, financing challenges are exacerbated by geopolitical fragmentation, stagnant foreign aid, and elevated borrowing rates that have tightened financial access for African countries.
“The funding squeeze is persistent, with many countries unable to access or afford financing,” reads the report.
“While global economic conditions have improved marginally since the COVID-19 pandemic, yields on Eurobond issuances for African nations remain high, ranging from 7.6% to 10.7% this year, compared to the pre-pandemic average of 6.75% observed between 2015 and 2019.”
This high-cost borrowing environment has severely limited access to international capital markets, pushing many governments to rely on expensive domestic funding.
One of the major drivers of this financing constraint is the impact of geopolitical instability. The IMF report underscores that geopolitical fragmentation has posed new challenges for foreign aid, which has already been on a downward trend.
This situation is especially pronounced in regions such as the Sahel, where political instability and recent coups have dissuaded traditional development partners from re-engaging fully.
“Foreign aid as a share of GDP in recipient countries is declining. This trend is particularly concerning in fragile regions that need support the most.”
In an attempt to address Africa’s financing gap, China announced at the September 2024 Forum on China-Africa Cooperation a pledge of $51 billion for the continent, which includes North Africa.
This funding commitment, spread over three years, equates to roughly 2.5% of Africa’s GDP. However, despite these pledges, the IMF warns that principal and interest repayments on existing debt are expected to rise as a share of GDP in both 2024 and 2025, highlighting the need for even larger inflows to stabilize net external financing.
“While the Chinese commitment is substantial, it is not enough to offset the overall challenges facing the continent in securing affordable financing,” remarked the IMF official.
Domestically, African debt markets are also struggling. Many countries are reaching the limits of sustainable borrowing, with debt auctions often undersubscribed or, in some cases, abandoned.
“Monetary policy tightening, aimed at curbing inflation, has led to increased borrowing rates for private entities, putting additional pressure on local businesses and slowing down investments,” the report observes.
The median real prime lending rate, which peaked at 5.4% in December 2023, remains high, further constraining economic activity.
Moreover, the IMF report notes that social and political pressures are increasingly complicating policy reforms in the region.
In recent months, Africa has experienced episodes of political fragility and social unrest, which have hindered efforts to implement economic adjustments.
“Political fragility and social unrest in several African countries are making it increasingly difficult to enact essential reforms,” the report highlights.
“Sub-Saharan Africa is disproportionately affected by conflicts and coups, and these events are compounded by the rapid cost-of-living increases faced by many citizens.”
The IMF points out that, African policymakers face three key hurdles in addressing the current financing crisis: subdued growth, tight financing conditions, and complex socioeconomic pressures.
Regional growth is projected at 3.6% in 2024, with resource-intensive economies especially oil exporters struggling the most. Factors such as conflict, insecurity, drought, and power shortages are all dampening economic growth.
The IMF calls for a coordinated approach to address Africa’s financing challenges. “African nations require the support of international partners to navigate these unprecedented challenges,” the IMF urges.
Without such support, the continent’s efforts to achieve economic resilience and sustainable growth may remain out of reach.
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