Looming global inflation and the implication of fuel subsidy removal for Africa

By Ishioma Emi

International lenders such as the World Bank and the International Monetary Fund (IMF) have issued warnings of a potential global recession. This situation would be particularly dire for emerging economies, particularly those in Sub-Saharan Africa. A depreciating currency and the ongoing conflict between Russia and Ukraine are causing instability in the global market, leading to food insecurity and slowing developed economies.

Last September, the World Bank, in a press release, noted how central banks around the world have been raising interest rates with a degree of synchronicity not seen over the past 5 decades – a trend that is likely to continue well into 2023. Yet “the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic. Investors expect central banks to raise global monetary-policy rates to almost 4 percent through 2023 – an increase of more than 2 percentage points over their 2021 average,” the World Bank said.

As policymakers introduce monetary policies to mitigate high inflation rates, the bank has warned in its newly published bi-annual Global Economic Prospects report of further global economic decline. “Global growth is projected to decelerate sharply this year, to its third weakest pace in nearly 3 decades, overshadowed only by the 2009 and 2020 global recessions,” the World Bank wrote. According to the international lender, this reflects synchronous policy tightening aimed toward containing very high inflation, worsening financial conditions, and continued disruptions from the Russian-Ukraine war. “Investment growth in emerging market and developing economies (EMDEs) is expected to remain below its average rate of the past 2 decades,” it added.

Many African economies are already experiencing high inflation rates – caused by currency depreciation and rising multilateral debts amid other global economic crises. Statista reported that the total external public debt on the continent grew to US$726.55 billion in 2021, from US$696.69 billion the previous year.