SSA: Persistent inflation could ignite stagflation risks – World Bank

The World Bank is of the view that persistent inflation coupled with decelerated growth could ignite stagflation risks on the African continent (same fears are expressed for the global economy by the World Bank).

Stagflation describes a situation where there is simultaneous decline and upsurge in economic growth and inflation respectively.

The Bretton Wood Institution in its June 2022 Global Economic Prospects Report, projected GDP growth on the continent to decelerate from 4.2% last year to 3.7% this year (2022) as high inflation and policy tightening (on the back Russia-Ukraine war) weaken domestic demand.

According to the World Bank, the projected 3.7% GDP growth for 2022 reflects its forecast downgrades in over 60% of economies in the Sub-Saharan African region.

“Growth in Sub-Saharan Africa (SSA) is projected to slow to 3.7 percent this year, reflecting forecast downgrades in over 60 percent of regional economies. Among the risks to the forecast, prolonged disruptions to the food supply across the region could significantly increase poverty, hunger, and malnutrition, while persistent inflation could ignite stagflation risks and further limit policy space to support recoveries,” said the World Bank.

Adding that, most economies in the region are in or at high risk of debt distress following marked deteriorations in fiscal balances and increased indebtedness caused by the Covid pandemic shock.

“Tighter global financial conditions are expected to significantly curtail access to financing in the region, compounding the negative impact of war induced capital outflows. This, together with pressures to improve debt sustainability, is likely to severely limit the scope for fiscal policy to stimulate demand, including support for food availability for vulnerable populations. Several countries already need to accelerate fiscal consolidation to stabilize public debt,” noted the report.

The Covid pandemic coupled with Russia’s invasion of Ukraine has led to widespread decline in growth and a persistent upsurge in inflation not only among Sub-Saharan African economies but also economies around the globe, hence the fears of stagflation similar to that experienced in the 1970s around the world.

Meanwhile, the World Bank is warning Ghana and some African countries against the widening credit spreads and weakened currencies.

In the same report, the Bretton Wood institution, also said the tightening of monetary policy to combat rising inflation has also gathered pace in several Sub-Saharan African economies including Ghana, Namibia, Nigeria, Rwanda, Sierra Leone and South Africa.

Moreover, the rising core inflation in several countries (Cameroon, Nigeria, Uganda) points to broadening price pressures, further reducing room for accommodative policies.

“Sovereign credit spreads have already widened and currencies weakened in countries perceived to be at high risk of debt distress (Ghana)”, it explained.

“Fiscal policy, already constrained by high public debt and tightening global financial conditions, have become even less accommodative. Spending pressures to curb the impact of rising prices have been building in many countries, for example, fuel subsidies in Cameroon, Kenya, and Nigeria; a fuel levy reduction in South Africa, further straining fiscal positions”, the World Bank stated.

The World Bank also pointed out that the tightening of monetary policy to combat rising inflation has also gathered pace in several Sub-Saharan African economies  such as Ghana, Namibia, Nigeria, Rwanda, Sierra Leone and South Africa.

Moreover, the rising core inflation in several countries (Cameroon, Nigeria, Uganda) points to broadening price pressures, further reducing room for accommodative policies.

Source: Norvanreports.com