Building macroeconomic and financial management capacity for resilience and growth

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Editor's note:

This viewpoint is part of Foresight Africa 2024.

Sub-Saharan Africa (SSA) has been hit by a multitude of shocks over the decade or so. In the recent past, the region has had to grapple with the significant buildup of macroeconomic imbalances in the wake of the COVID-19 pandemic and the Russia-Ukraine war. Fiscal positions have deteriorated, while surging import bills and higher debt burdens have heightened financing needs. The limited options to meet the governments’ financing needs is increasingly a challenge owing to the rapid tightening of global financial conditions, shrinking foreign exchange reserves in some countries, and reduced donor support, among others. Median public debt increased by about 30 percentage points, from 28.8% of GDP to 59.1 percent, from 2012 to 2022 in the SSA region, increasing concerns about debt sustainability. As at end August 2023, eight countries were in debt distress while 12 are at high risk of debt distress. The cost of living remains high relative to GDP across the SSA region, partly owing to the effects of the rise in global food and energy prices in 2022. Annual food inflation has remained above 20% in several SSA economies (Ethiopia, Ghana, Rwanda), and in double digits in over 60% of the countries. Furthermore, the effects of climate change, characterized by prolonged droughts and devastating floods as well as political instability in some countries, have compounded the unrelenting economic challenges.

The Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI)’s capacity-building interventions for 2024 in response to the vulnerabilities will be in line with its Phase VI Strategic Plan. The Institute will support countries to strengthen their debt management through building requisite capacity in debt negotiation, debt strategy formulation, debt sustainability analysis, and institutional and legal reforms. Key to informing accurate debt policy formulation will be to ensure the availability of comprehensive debt databases in member countries through supporting the transition to new computer-based debt management information systems. The experience of Zambia in debt restructuring through the G20 common framework provides critical peer to peer learning and knowledge exchange for our membership and will inform interventions by MEFMI in support to countries. The interventions will include facilitating training and awareness on alternative sustainable funding models, including climate financing. 

In the past few years, MEFMI countries have faced challenges of appropriately responding to the evolving shocks while at the same time limiting consequences to macroeconomic and financial stability. The Institute will focus on enhancing skills of key officials in central banks and ministries of finance to make informed choices of frameworks and instruments that address emerging issues and support macroeconomic stability. MEFMI will build capacity in the countries on compilation and dissemination of monetary and financial statistics, as well as external sector statistics, which are prerequisite for effective monetary policy formulation. Technical assistance will also be provided to member countries to build models which will forecast the future course of inflation, taking into consideration the likely impact of shocks on the output gap. In addition, MEFMI intends to continue supporting work on incorporating gender-responsive budgeting in the macroeconomic frameworks.

MEFMI will support countries on aspects of fintech and digital financial services, including regulation, risk aspects, and legal frameworks as well as consumer protection issues.

The Institute will ensure that member countries leverage on the emerging ICT options. The proliferation of fintech companies and digital financial services and products across the globe, has caused disruptions in the financial sector. MEFMI will support countries on aspects of fintech and digital financial services, including regulation, risk aspects, and legal frameworks as well as consumer protection issues.

Since the COVID-19 pandemic, heightened volatility has plagued the financial markets, leading to negative asset valuations, reduction in the foreign exchange reserves, and weakening of domestic currencies. MEFMI will train officials on the use of derivatives to manage financial risk and fixed income strategies to diversify and grow foreign exchange reserves and to assist in meeting the respective countries’ debt and foreign exchange obligations. MEFMI has developed an Internal Credit Risk Analysis Tool which is available for use by member countries to monitor credit risk of bond issuers to augment the credit analysis function amid the current volatile global environment. In all the programs to be implemented, MEFMI has prioritized the inclusion of climate change perspectives in its programming to align with the emergent issue that will shape fiscal and monetary policy going forward.