The World Bank has projected the economic growth of Sub-Saharan African countries, Nigeria inclusive, to slow to 3.2 percent in 2023 and rise to 3.9 percent in 2024.
It pointed out that global growth has slowed sharply and the risk of financial stress in emerging markets and developing economies (EMDEs) is intensifying amid elevated global interest rates.
This is contained in the latest World Bank Global Economic Prospects report released on Tuesday.
“Global growth is projected to decelerate from 3.1 percent in 2022 to 2.1 percent in 2023. In EMDEs other than China, growth is set to slow to 2.9 percent this year from 4.1 percent last year.
“Sub-Saharan Africa: Growth is expected to slow to 3.2 percent in 2023 and rise to 3.9 percent in 2024. These forecasts reflect broad-based downgrades”, the World Bank said.
World Bank Group President Ajay Banga said, “The surest way to reduce poverty and spread prosperity is through employment – and slower growth makes job creation a lot harder.
“It’s important to keep in mind that growth forecasts are not destiny. We have an opportunity to turn the tide but it will take us all working together.”
The Bank noted that most EMDEs have seen only limited harm from the recent banking stress in advanced economies so far, but they are now sailing in dangerous waters, stressing that with increasingly restrictive global credit conditions, one out of every four EMDEs has effectively lost access to international bond markets.
The squeeze, it added, is especially acute for EMDEs with underlying vulnerabilities such as low creditworthiness, and growth projections for these economies for 2023 are less than half of those from a year ago, making them highly vulnerable to additional shocks.
Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President said,
“The world economy is in a precarious position. Outside of East and South Asia, it is a long way from the dynamism needed to eliminate poverty, counter climate change, and replenish human capital. In 2023, trade will grow at less than a third of its pace in the years before the pandemic.
“In emerging markets and developing economies, debt pressures are growing due to higher interest rates. Fiscal weaknesses have already tipped many low-income countries into debt distress.
“Meanwhile, the financing needs to achieve the sustainable development goals are far greater than even the most optimistic projections of private investment.”
The latest forecasts indicate that the overlapping shocks of the pandemic, the Russian invasion of Ukraine, and the sharp slowdown amid tight global financial conditions have dealt an enduring setback to development in EMDEs, one that will persist for the foreseeable future.
By the end of 2024, economic activity in these economies is expected to be about 5 percent below levels projected on the eve of the pandemic.
The Bank stated that in low-income countries, especially the poorest, the damage is stark as in more than one-third of these countries, per capita incomes in 2024 will still be below 2019 levels, stressing that this feeble pace of income growth will entrench extreme poverty in many low-income countries.
Ayhan Kose, Deputy Chief Economist of the World Bank Group said, “Many developing economies are struggling to cope with weak growth, persistently high inflation, and record debt levels. Yet new hazards – such as the possibility of more widespread spillovers from renewed financial stress in advanced economies – could make matters even worse for them.
“Policy makers in these economies should act promptly to prevent financial contagion and reduce near-term domestic vulnerabilities.”
According to the latest World Bank Global Economic Prospects report, in advanced economies, growth is set to decelerate from 2.6 percent in 2022 to 0.7 percent this year and remain weak in 2024.
The report says after growing 1.1 percent in 2023, the U.S. economy is set to decelerate to 0.8 percent in 2024, mainly because of the lingering impact of the sharp rise in interest rates over the past year and a half.
In the euro area, growth is forecast to slow to 0.4 percent in 2023 from 3.5 percent in 2022, due to the lagged effect of monetary policy tightening and energy-price increases.
The report also offers an analysis of how increases in U.S. interest rates are affecting EMDEs, pointing out that most of the rise in two-year Treasury yields over the past year and a half has been driven by investor expectations of hawkish U.S. monetary policy to control inflation.
According to the report, this particular type of interest rate increases is associated with adverse financial effects in EMDEs, including a higher probability of financial crisis; moreover, these effects are more pronounced in countries with greater economic vulnerabilities.
In particular, frontier markets, those with less developed financial markets and more limited access to international capital, tend to see outsized increases in borrowing costs; for instance, sovereign risk spreads in frontier markets tend to rise by more than three times as much as those in other EMDEs.
In addition, the report provides a comprehensive assessment of the fiscal policy challenges confronting low-income economies, these countries, it noted, are in dire straits.
“Rising interest rates have compounded the deterioration in their fiscal positions over the past decade. Public debt now averages about 70 percent of GDP. Interest payments are eating up a rising share of limited government revenues. 14 low-income countries are already in, or at high risk of, debt distress. Spending pressures have risen in these economies.
“Adverse shocks such as extreme climate events and conflict are more likely to tip households into distress in low-income countries than anywhere else because of limited social safety nets.
” On average, these countries spend just 3 percent of GDP on their most vulnerable citizens – well below the 26 percent average for developing economies”, the report further states.
On regional outlooks, the report says growth inEast Asia and Pacific is expected to increase to 5.5 percent in 2023 and then slow to 4.6 percent in 2024.
For Europe and Central Asia, it states that growth is expected to edge up slightly to 1.4 percent in 2023 before increasing to 2.7 percent in 2024.
In Latin America and the Caribbean, it says growth is projected to slow to 1.5 percent in 2023 before recovering to 2 percent in 2024.
The report says Middle East and North Africa growth is expected to slow to 2.2 percent in 2023 before rebounding to 3.3 percent in 2024.
For South Asia, it noted that growth is projected to edge down to 5.9 percent in 2023 and then to 5.1 percent in 2024.
