(Bloomberg) -- Russia's war with Ukraine has pushed public-debt ratios in sub-Saharan Africa to the highest level in two decades, with almost half of the region's economies facing debt distress, the International Monetary Fund said.
Surging commodity prices, a result of disruptions to food and energy exports from Russia and Ukraine, are undermining fiscal and external balances, threatening food security and energy affordability for the region's most vulnerable, the IMF said in a report published Thursday. Higher fertilizer and energy costs are also expected to drive inflation as they increase costs for harvesting, transporting and processing food, it said.
The conflict is “hitting the region at a time when most countries have little to non-existent fiscal space to buffer the shock,” it said. The fund projected that the region's economic growth will slow to 3.8% this year because of the war, down from an estimated 4.5% in 2021.
The outlook is “disappointing,” Abebe Aemro Selassie, director of the IMF's Africa department, said in an interview. “We expected similar or higher growth this year.”
Even before the Ukraine war, debt levels in sub-Saharan Africa were elevated, exacerbated by the Covid-19 pandemic, Selassie said. Six countries are in debt distress and another 14 countries are at high risk of distress, according to an IMF analysis of 45 countries in the region.
Debt renegotiations for distressed countries will be “more complicated,” given that the region's bilateral debt has shifted to non-Paris Club creditors -- particularly China -- as well as a growing pool of private investors, the fund said.
External public debt held by private entities in sub-Saharan Africa has nearly tripled to 11% of GDP in 2020 from 4% in 2010, according to IMF. Over the same period, domestic government debt has doubled to 30%, it said.
Sub-Saharan Africa also faces a risk of sell-offs in financial markets that may trigger capital outflows “at a time they are needed most,” meaning economies would face increased borrowing costs and exchange-rate pressures.
The region's reliance on foreign funds has led to a steep rise in external debt-service costs and higher rollover risks, making it “highly vulnerable to a tightening in global financial conditions and exchange-rate depreciations.”
Higher food inflation will add to food insecurity and social tensions, given that food accounts for about 40% of consumer spending in sub-Saharan Africa, according to Selassie.
©2022 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
