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Inflation is wrecking SA and other Sub-Saharan economies

But there is not enough fiscal space to respond to inflation, according to the World Bank.

The World Bank noted in its most recent Africa Pulse report that the upward trend of inflation after the pandemic period had been exacerbated by the war in Ukraine, with inflation in many countries reaching record highs.

According to Business Live, There were only four of the 33 countries in Sub-Saharan Africa where inflation was below 5% in July, according to the bank. Consumer price inflation peaked at 7.8% in South Africa, making the country an exception.

The World Bank reported that inflation remained high despite the use of aggressive monetary policy in several countries. Food and gas prices in South Africa have risen to an intolerable level, causing consumers to tighten their purse strings.

In August, food price inflation reached 11.5%, with fuel price inflation at 43.2%.

The Monetary Policy Committee (MPC) of the South African Reserve Bank increased interest rates by 75 basis points in September, bringing the repo rate to 6.25% per annum. To combat rising prices, the government has reverted to pre-pandemic spending levels.

Sub-Saharan Africa (SSA) economic growth is expected to slow from 4.1% in 2021 to 3.3% in 2022, according to the World Bank’s latest biannual analysis of the near-term regional macroeconomic outlook, a downward revision of 0.3 percentage points since the bank’s previous report in April.

The SARB expects growth of 1.9% in GDP in 2022, down from 2.0% in the previous meeting in July, which is significantly lower than the regional outlook.

Economists from Momentum Investments predicted in their October economic outlook that the Reserve Bank would continue raising interest rates despite inflation reaching headline levels. This is due to the firm’s belief that global inflation would persist.

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According to the group’s projections, headline inflation will be under 7% in 2019 and closer to 5% in 2023.

There is not enough money to repair it at this time.

High levels of debt across Sub-Saharan African countries, rising borrowing costs, and depleted public savings have eliminated the “fiscal space to mount effective responses today,” according to the World Bank.

During the pandemic, countries prioritized aid for the most vulnerable populations, increasing the primary deficit in the region.

Since 2011, debt has been steadily increasing; this trend is expected to continue, with debt levels reaching 59.5% of GDP by 2022. The debt consolidation efforts are expected to reduce the primary deficit to 4.8% of GDP on average in the region.

Momentum predicts growth in South Africa will decelerate to around 2% this year and 1.5% in 2023.

Servicing debt in the region has become increasingly difficult as a result of rising debt levels and the resulting pressure on domestic currencies. According to the World Bank, there has been no noticeable progress in lowering debt and/or vulnerabilities.

In response to slow growth and high inflation, the World Bank has urged the South African government to immediately restore macroeconomic stability and protect, particularly, the poor.

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