AfDB report projects East Africa

The East African economic growth is projected to recover this year despite COVID-19 setbacks thanks to sustained public spending on infrastructure and improved performance of the agricultural sector.

The bloc's growth is likely to reach an average of 4.1 percent this year, up from 0.4 percent posted last year, according to the African Development Bank's latest economic outlook report for the region.

The report showed that next year’s average growth is projected to hit 4.9 percent.

According to the report's findings, COVID-19 containment measures and global supply and demand disruptions hit businesses and livelihoods hard and increased poverty while political fragility in some countries and limited economic diversification in others were significant impediments to growth.

The Somali Finance Minister, Abdirahman Dualeh Beileh, warned when launching the report late last month that the pandemic could continue to impede progress toward inclusive growth.

"The contraction of economic activities, increase in fiscal deficits due to high public spending to respond to the COVID-19 pandemic amidst reduced public revenues and exchange rate depreciation following reduced income from commodity exports created fiscal and debt distress risks in the region in 2020."

The flagship report reviews the socio-economic performance of 13 countries namely Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Sudan, Tanzania and Uganda.

The report, Debt Dynamics In East Africa: The Path To Post-Covid Recovery, notes that the rapid recovery of the region is being driven by sustained public spending on infrastructure, improved performance of the agricultural sector and deepening regional economic integration.

According to the report, while East Africa is undergoing a shift toward a more service-oriented economy, some countries are experiencing deindustrialisation.

To accelerate recovery and build post COVID-19 resilience, the report recommends that countries accelerate structural transformation through digitalisation, industrialisation, economic diversification and consolidation of peace, security, and stability.

The outlook report projects a full recovery from 2023 due to the increased roll-out of vaccines, recovery in the global economy, rising commodity prices and growing economic diversification in the region.

"A mix of policy interventions is needed to accelerate East Africa's economic recovery and build post COVID-19 resilience. These include scaling up vaccinations, designing and implementing economic stimulus packages and stabilizing public debt by dealing with debt related to state enterprises among others," Nnenna Nwabufo, Director General for East Africa, AfDB, said.

The region's resilience last year was due to relatively higher economic diversification and governments' swift policy responses to counter the pandemic's impacts.

Still, Marcellin Ndong Ntah, a lead economist at AfDB warned that the risks to the region's positive outlook remain substantial due to the uncertainties surrounding the longevity and severity of the pandemic, the slow uptake of vaccines, rising global oil prices for the non-oil exporting countries in the region, the slow pace of structural transformation, conflicts and civil unrest, weather-related shocks and locust invasions in the region.

Emmanuel Pinto Moreira, Director, Country Economics Department, AfDB, said many East African economies continue to need short-term debt relief and emergency external financing from multilateral lenders.

He added that many had received budget support under AfDB's COVID-19 Response Facility and emergency financing from the International Monetary Fund.

Economic experts at the launch called for better economic governance, notably clearing domestic arrears, improving debt management and transparency and dealing with debt related to state-owned enterprises.

"For countries with substantial external financing risks, innovative financing instruments like non-debt equity, risk-sharing with the private sector, including through collateralization and increasing foreign investor participation in local-currency debt markets, should be explored to diversify the sources of development finance," Edward Sennoga, AfDB lead economist, said.

This, he added, will insulate the region's economies from global volatility shocks. Louis Kasekende, Executive Director, Macroeconomic and Financial Management Institute of Eastern and Southern Africa, pointed out that policies to diversify public financing sources, improve public revenue mobilization and prioritize infrastructure investments will be critical to ensure debt sustainability.

"Public debt, if used correctly, can help boost essential services, leading to improved economic growth," he said.

Until last year when the pandemic invaded the region, East Africa was the fastest growing economy on the continent but it appears the sub-region will cede its position to central and southern Africa this year and to North Africa next year due to strong recoveries expected in those regions.