World Bank Lowers Economic Growth Forecast for Sub-Saharan Africa

By Duncan Miriri

NAIROBI (Reuters) – The World Bank stated on Monday that it has revised its economic growth forecast for sub-Saharan Africa for this year down to 3% from 3.4%, primarily due to the devastation of Sudan's economy caused by ongoing civil war.

Despite this adjustment, growth is anticipated to remain comfortably above last year's 2.4%, driven by increased private consumption and investment, according to the bank's latest regional economic outlook report, Africa's Pulse.

Andrew Dabalen, chief economist for the Africa region at the World Bank, mentioned during a media briefing, "This is still a recovery that is basically in slow gear."

The report also projected next year's growth at 3.9%, slightly up from the previous forecast of 3.8%.

Moderating inflation across many countries is expected to enable policymakers to begin lowering high lending rates.

Nevertheless, the growth forecasts are still under serious threats from armed conflict and climate-related challenges including droughts, floods, and cyclones. Without the conflict in Sudan, which has severely disrupted economic activities leading to famine and widespread displacement, regional growth in 2024 would have exceeded the initial estimate by half a percentage point.

According to the report, growth in South Africa, the region's most advanced economy, is expected to rise to 1.1% this year and 1.6% by 2025, up from 0.7% the previous year. Nigeria is projected to grow at 3.3% this year, increasing to 3.6% in 2025, while Kenya, being the richest economy in East Africa, is likely to expand by 5% this year.

Commodities

The sub-Saharan Africa region enjoyed robust average annual growth of 5.3% from 2000-2014, fueled by a commodity supercycle, but growth began to decline with the fall in commodity prices. This decline was further exacerbated by the COVID-19 pandemic.

Dabalen warningly stated, "Cumulatively, if that were to continue for a long time, it would be catastrophic."

Many economies within the region are facing shortages of public and private investments. Although foreign direct investment began a slow recovery in 2021, it has not yet reached significant levels.

He emphasized the need for much larger investments to enable faster recovery and poverty reduction in the region.

High debt servicing costs, particularly in countries like Kenya, have hampered growth, which was further exemplified by deadly protests against tax hikes that occurred in June and July.

Dabalen noted, "There are staggering levels of interest payments," attributing this to a shift in government borrowing towards financial markets over the past decade rather than relying on affordable credit from institutions like the World Bank.

Currently, total external debt among these economies has surged to approximately $500 billion, compared to only $150 billion fifteen years ago, primarily owed to bond market investors and China.

Countries such as Chad, Zambia, Ghana, and Ethiopia have faced defaults in the past four years, leading to debt restructuring under the G20 initiative's Common Framework. Ethiopia is still in the process of restructuring, while others have completed their adjustments.

Dabalen concluded, "As long as these debt issues are not resolved, there is going to be a lot of 'wait and see' games going on, and that is not good for the countries, and certainly not good for the creditors as well."