Experts Warn East Africa on Debt and Climate Effects in New Report

A new economic projection for Eastern Africa shows that the economies of the 13-countries will grow by around 4 percent this year and faster in 2023 at 4.7 percent.

The African Development Bank’s East Africa Regional Economic Outlook 2022 however shows imbalanced growth due to the varying factors prevailing from country to country.

The report features East African Community countries of Uganda, Burundi Kenya, Rwanda, South Sudan and Tanzania, as well as Comoros, Djibouti, Eritrea, Ethiopia, Seychelles, Somalia and Sudan.

According to the study, the region posted good recovery in 2021 after economies reopened, but most are yet to achieve the pre-COVID 19 growth rates.

Top performers were Ethiopia, Kenya, Rwanda, Seychelles, Tanzania, and Uganda, but the experts warn that the Russia/Ukraine war, which has increased global food and energy prices, could further slow the economic recovery.

Nnenna Nwabufo, the Director General for East African Region at the AfDB says the countries must quickly diversify their economies to avoid any future shocks, having learnt a lesson from COVID 19 and the way.

The document discusses several policy interventions needed to boost East Africa’s post- COVID 19 recovery and build resilience against emerging vulnerabilities.

It provides short, medium and long-term policy options for supporting climate resilience and a just energy transition.

It comes at a time that the Africa countries are facing an increased risk of debt distress and growing inability to finance their budgetary needs with domestic revenues. 

According to an analysis by international lenders, most of Africa’s current debt is expiring between 2023 and 2025 and yet most of the countries are showing no signs of having strengthened enough to clear their indebtedness. 

Dr. Emmanuel Pinto Moreira, Director Country Economics at the Bank says all African countries are either at moderate of high risk level of indebtedness.

He calls for a continental solution to tackle the situation because, according to him, even the debt relief measures being suggested by the developed world and global lenders will not bear much fruit for Africa.

The report on the theme: Supporting Climate Resilience and a Just Energy Transition warns that while the international sources of finance are dwindling and becoming harder, the situation is being abetted by the fight against climate change and global warming.

Because of this, projects to be funded are increasingly being required to include a climate mitigation component.

On top of this, resources that are being used to respond to climate change effects like floods, doubt and related outbreaks and low agricultural output, are having an adverse impact on the growth of economies.

Nwabufo says despite the fact that Africa contributes least (3 percent) to global warming and is incurring the most burden, it is the least prepared and second least resilient.  

While presenting the report, Dr Batte Senoga Edward, Macro- Economist at AfDB, warned that the African continent GDP per capita growth could lose more than 16 percent, hence making more people poorer, if global temperatures rise by just two percent in 10 years. 

A key policy priority emerging from the report is the need for East African countries to “build macroeconomic resilience by diversifying their economies to withstand shocks”.

It also states the need, in the short to medium term, to focus on building macroeconomic stability through debt restructuring, improving tax administration, and strengthening efficiency in public spending.

Most African countries are using the monetary policy as the main tool to curb the high inflation rates, by hiking interest rates to limit the amount of cash in circulation.

However, Dr. Rose Ngugi, the Executive Director at the Kenya Institute for Public Policy Research and Analysis says in this situation, the authorities are getting it wrong because their policies have a worse effect on the people and enterprises which need cash to recover.

Ngugi says the countries must focus further on economic integration so that they make the movement of capital and goods and services easier in Africa, to make the continent more shielded from global shocks.

She gives the example of the African Continental Free Trade Area which is yet to be fully implemented, almost four years since the idea was mooted.

She hopes that the regional economic blocs will make it easier for the continental trade arrangement despite some countries belonging to more than one bloc, a scenario that must be resolved soon.

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