AfDB predicts 1.6% growth in 2023 across Africa due to inflation, rising interest rates

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The African Development Bank (AfDB) recently released its 2023 Southern Africa Economic Outlook, painting a sombre picture of the region’s economic prospects.

The continent’s leading development financier predicts a meagre growth rate of 1.6% for this year, attributing the downturn to climate change, inflation, rising interest rates, and persistent global shocks that continue to impact economies across Africa.

Covering 13 countries in the Southern African block, the region has borne the brunt of the aftermath of the COVID-19 pandemic, with moderate economic growth observed over the past two years, expected to persist on a sluggish trajectory.

Slow growth

Lead Economist at the African Development Bank, George Kararach, cautions that growth is likely to slow down in Southern Africa to approximately 1.6% in 2023, with a slight improvement to around 2.7% in 2024.

Notably, only Botswana and Zimbabwe are expected to register a surplus in fiscal balance during the period 2023 to 2024.

The impact of climate change on the region’s economic growth cannot be underestimated. Vice President of Economic Governance and Knowledge Management at the AfDB, Kevin Chika Urama, underscores that climate change, coupled with inflation driven by energy commodity price hikes and supply chain disruptions, has added to the strain.

Moreover, the tightening of monetary policies in the United States and Europe has resulted in rising interest rates, posing additional challenges for African countries, particularly in managing their debt service payments.

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Climate resilience measures

In response to these multifaceted challenges, the AfDB emphasises the urgent need for enhanced green growth and climate resilience measures. The Bank highlights the role of the private sector in mobilising financing for climate and green growth initiatives on the continent.

Kararach stresses that issues of weak governance and institutional capacity have hindered progress in these areas, making innovative partnerships with the private sector crucial in spearheading transformative action and bridging the climate finance gap at the regional level.

To address the climate vulnerability of the continent, the AfDB has proposed policy recommendations aimed at mitigating the impact and promoting economic growth.

Regional Director General at the African Development Bank, Leila Mokaddem encourages dialogue on macroeconomic issues and climate change pressures, urging both regional and national policymakers to utilise the report for formulating effective strategies.

Notably, the report reveals a significant funding requirement of one trillion US dollars from 2020 to 2030 to finance climate action.

The AfDB estimates that the 13 countries in the region will need to contribute $90.3 billion annually to meet this target. Recognizing the challenges in achieving this goal, the bank stresses the imperative role of the private sector in supporting climate action and green growth initiatives in the region.

As Southern Africa grapples with a complex web of economic challenges, the AfDB’s call for collaboration, innovation, and private sector engagement offers a glimmer of hope for the region’s economic resilience and sustainable growth.

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