In October, President Muhammadu Buhari presented an Appropriation Bill of N20.51trn ($43.7bn) for the fiscal year 2023 to the joint session of ... the lower and upper Chambers of the National Assembly. He described the 2023 proposed budget as one “of fiscal sustainability and transition" - his very last budget as Nigeria's president. However, what financial legacy is he leaving behind?
Within days of Russia invading Ukraine, shockwaves coursed through the global trading and financial systems. At first, most of them battered Russia and Belarus, the targets of US and European sanctions. Then, as more countries joined the targeting, Moscow hit back with countermeasures, collecting some dividends en route from its closer relations with China.
Soon, the energy and grain markets were thrown into chaos, prices yo-yoing as nervous governments started panic buying, fearful of the political consequences of spiralling bread prices or chronic fuel shortages. At the UN, diplomats exchanged rhetorical blows while the guns and bombs thundered seven-and-a-half-thousand kilometres away. In Washington DC, international financial institutions sounded new alarums about ballooning debt and rocketing food prices.
Facing an unprecedented crisis
The International Monetary Fund (IMF) organised its global fiscal forums, talking to each region’s finance ministers and central bankers in turn. At the Africa Forum, held virtually on 10-11 March, IMF managing director Kristalina Georgieva and Jutta Urpilainen, European commissioner for international partnerships, sounded dire warnings.
“Sub-Saharan Africa is recovering from an unprecedented crisis,” said the joint statement of Georgieva and Urpilainen. “Yet, the outlook remains very uncertain, given the slow progress inequitable access to vaccinations, limited policy space in many countries, and now spillovers from the war in Ukraine.” The war, explained Georgieva and Urpilainen, was likely “to exacerbate inflationary pressures from food and fuel, worsen the fiscal positions of SSA countries and disrupt capital flows, possibly jeopardising access to external financing.”
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That challenges both their organisations. The IMF shovelled out over $26bn in credits to African member states in the early phases of the pandemic. The European Commission lent more than $10bn. They will both be expected to do more, in response to a war that could scupper the global recovery from the pandemic.
After the Fiscal Forum, Georgieva told the media that the war in Ukraine would hit Africa’s economies along four channels. “First, with energy prices. We have 12 countries in Africa that are energy exporters, and 42 that are energy importers. With the limited fiscal space they have, this is a real shock.”
The second channel – rocketing food prices – could have still more dramatic effects: “A number of African countries already see food insecurity on a very large scale – Sudan, Ethiopia, broadly the Horn of Africa region are already in difficulty and now food prices are shooting up. Some of these countries import wheat and corn from Russia and Ukraine.”
The third impact concerns those governments “struggling to overcome the pressures of debt service with financial conditions starting to tighten”. And, finally, tourism, a big source of revenue for countries such as Egypt and Kenya, is likely to contract sharply again after enjoying a tentative recovery in the wake of the pandemic.
“The African ministers were telling me that it is really crucial to find a way to buffer their economies,” said Georgieva. All these pressures will test governments’ financial management as well as their political skills. The policy objectives are clear enough: strengthening social protection, mobilising tax revenue and managing debt-service demands.
‘Global economic meltdown’
UN Secretary-General António Guterres described the conditions unleashed by the war as a “global economic meltdown”. And many African treasuries, badly depleted after two years of pandemic and faltering domestic tax revenue, will struggle to step up targeted social protections, much less pay for food and fuel subsidies.
At a special press briefing in Washington DC to a small group of journalists, Georgieva argued that many of the economic headwinds have been gathering strength from each other. The causes of inflation, she said, “are clearly multiple. We have the pressure that comes from supply-side disruptions, from demand in some countries being pumped up by the policy support measures […], the issue of shifting from services to goods, and then the shortage of these goods to meet the demand.”
Environmental factors are now overwhelmingly important, argued Georgieva, and the Ukraine-Russia crisis could pressure food prices on top of the climate shocks. “We have seen these shocks – floods, droughts, hurricanes –, how they have impacted food availability. […] We know in parts of the world like the Sahel and the Horn of Africa, this is aggravating not just the living conditions of the people, but also the security situation.”
Those conditions present policymakers with exceptionally hard choices, she said. Governments have to manage “the delicate balance between fighting inflation and protecting the recovery”.
As journalists fired questions about where the latest developments were leading, Georgieva offered a sense of the complexity of the factors shaping international economies: “What we can anticipate is a more shock-prone world, one in which we integrate this future into decisions we make today. […] We should invest more in the resilience of people, more equitable access to opportunities and more inclusive growth.”
Part of the problem is that many of our decision-makers and institutions are not yet able to adapt quickly enough to a world where there may be more than one crisis at a time. Georgieva recalled that a senior economist was asked whether supply-chain interruptions might become a longer-term feature of economies. To which he responded: “If we don’t pay attention to factors that are more present, including geopolitical tensions, then we may be heading for a bad surprise.”
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