Balancing Growth Amid Persistent Challenges

The October 2024 IMF report on Sub-Saharan Africa’s economic outlook reveals a steady yet cautious path forward, with growth projected at 3.6% in 2024 and inflation expected to ease from 18.1% to 12.3% by 2025. While fiscal policies have stabilized the region’s debt-to-GDP ratio at 58%, the high cost of debt servicing – consuming over 20% of revenues in many countries – limits resources for development. With rising food prices driving social unrest, and climate shocks intensifying, the report underscores the need for balanced policy adjustments. Sustained progress will depend on targeted reforms, social support mechanisms, and external funding to support economic resilience across diverse economies.

1. Growth and Inflation:
   • Real GDP growth for the region is projected at 3.6% in 2024, with expectations to slightly rise to 4.2% in 2025. Resource-intensive countries grow slower than others, with oil exporters facing the most challenges.
   • Inflation has seen a decline due to policy tightening, with the region's headline inflation forecasted to reduce from 18.1% in 2024 to 12.3% in 2025.
   • Resource-intensive countries like Tanzania are forecasted to grow below the regional average, constrained by tight external financing conditions and structural weaknesses affecting the business environment​.
2. Debt and Fiscal Balance:
   • The median public debt-to-GDP ratio stabilized at 58% in 2024. However, debt service burdens remain high, consuming over 20% of revenues in a quarter of the countries, leading to reduced resources for development spending.
   • For Tanzania, debt sustainability remains a concern as public debt continues to limit fiscal space for growth-stimulating investments​.
   • Fiscal consolidation has been a focus, with a reduction in the fiscal deficit by 1.3 percentage points of GDP across many countries in 2023. More countries are expected to further reduce deficits by 0.4 percentage points in 2024.
   • Tanzania is expected to see additional consolidation in 2024, focusing on expanding tax revenues and controlling expenditures to stabilize the debt level. However, tight fiscal conditions pose challenges for financing social and infrastructure projects essential for sustainable development​

3. External Position:
   • Median current account deficit is projected to narrow by 0.7 percentage points of GDP in 2024, helped by fiscal consolidation and adjustments in exchange rates.
4. Social and Political Pressures:
   • Social unrest is a rising concern due to high poverty, job scarcity, and inflation, especially in countries like Nigeria and Kenya. Food prices have risen sharply, with food price indexes up significantly since 2019.
   • Tanzania, like other countries, faces potential social unrest if economic conditions do not improve, particularly for unemployed youth and low-income households impacted by rising costs. Effective fiscal management and equitable resource allocation are critical to addressing these pressures​
5. Key Risks:
   • Climate risks, social unrest, and global market volatility are major threats. Political fragility, seen in the rising number of coups and conflicts, further complicates policy implementation.
   • Tanzania faces heightened risks from climate-induced events such as droughts, affecting agriculture and food security, and contributing to inflation pressures. The IMF notes that climate adaptation will require significant resources, impacting budget allocation​
   • An IMF model suggests that a 150-basis-point rise in sovereign risk premiums could reduce growth by 0.7 percentage points in 2025–26, worsening investment and growth (AFRMOD model simulation).
   • Debt and Financing: External financing remains tight, with rising interest rates and geopolitical tensions reducing access to affordable debt. Tanzania, with moderate reserves, may experience increased borrowing costs, further stressing its fiscal space.
   • Global Market Risks: Regional exposure to global financial fluctuations adds to uncertainty, especially with tightening US monetary policy potentially increasing debt servicing costs for Tanzania. Additionally, regional conflicts and commodity price fluctuations may destabilize Tanzania's economic outlook​
6. Policy Recommendations:
   • Tanzania’s need for continued fiscal discipline, inflation control, and resilience to social and climate-related pressures to stabilize and stimulate long-term growth in an increasingly challenging environment.
   • Policymakers are advised to focus on stabilizing prices, ensuring debt sustainability, and building social protection frameworks. Measures include broadening tax bases, improving governance, and enhancing social inclusiveness to gain public support for reforms.

These efforts aim to foster resilience and inclusive growth but require balancing economic stabilization with social acceptance amid complex challenges.

The October 2024 Regional Economic Outlook for Sub-Saharan Africa from the IMF provides a mixed view of progress and challenges for economic stability and growth across the region.

1. Economic Progress with Persistent Vulnerabilities:
   • Growth in Sub-Saharan Africa remains steady at 3.6% but lacks momentum. Inflation is coming down in most countries due to stricter monetary policies, yet remains high in oil-dependent and resource-intensive economies.
   • Fiscal efforts have improved debt stability, with debt-to-GDP ratios holding steady around 58%. However, the debt burden still strains public finances, with high debt servicing costs cutting into funds available for development.
2. Social and Political Pressures:
   • The region faces growing social unrest driven by high inflation, especially in food prices, job scarcity, and widespread poverty. These pressures make reform implementation difficult for policymakers, particularly in fragile countries with limited resources.
3. Climate and Global Risks:
   • Climate change impacts, including droughts and floods, severely threaten food security and economic stability. Additionally, global financial market volatility and geopolitical tensions pose risks to financing and growth.
4. Strategic Recommendations:
   • The IMF recommends that policymakers pursue balanced economic policies, carefully manage inflation, and focus on debt sustainability. Building stronger social safety nets and effective communication strategies are critical to maintaining public support for necessary reforms.
5. Path Forward with IMF Support:
   • The IMF emphasizes its commitment to aiding the region through concessional financing and capacity-building initiatives. Given the tough financing environment, it highlights the importance of external support and sustainable development strategies tailored to each country’s specific needs.

In summary, while Sub-Saharan Africa shows resilience in some areas, challenges like high inflation, limited financing, climate impacts, and social unrest highlight the need for carefully coordinated reforms that balance economic stability and social needs.