African economies remain vulnerable to external shocks, mounting debt and persistent inflation, making international financing increasingly important but also raising questions about the social cost of economic reforms, according to Dumebi Oluwole, a Pan-African economist.
In an interview with DNE Africa, Oluwole said the COVID-19 pandemic, the Russia-Ukraine war and the ongoing Iran war have placed successive pressures on public finances, currencies and household purchasing power across the continent.
With oil prices above $100 a barrel, governments face the challenge of containing inflation and restoring fiscal stability without undermining economic growth or placing an excessive burden on vulnerable households.
Oluwole discussed the implications of new International Monetary Fund (IMF) programmes for Zambia and Niger, the obstacles delaying an agreement with Malawi, differences in African monetary policies and the prospects for economic growth across the continent.
She also identified digital innovation, climate finance, energy infrastructure and deeper regional trade integration as major opportunities, while warning that high debt, governance weaknesses and climate risks could undermine progress.
What do the latest IMF engagements tell us about the economic pressures facing African countries and their reliance on external financing?
African countries are still exposed to shocks they did not create, and the IMF has become the bridge. But that bridge comes with a cost, and it is often households that pay it.
Many countries have not fully recovered from the damage the COVID-19 pandemic inflicted on public finances in 2020. The Russia-Ukraine war added another shock through food and fuel prices, and the Iran war is now a third, with oil above $100 a barrel.
These shocks have reduced revenue, increased spending and raised interest costs, leaving countries with higher public debt, higher inflation and weaker currencies. That is why demand for IMF support keeps returning. In October alone, Zambia agreed a new $1.47 billion programme months after its previous one ended, Niger agreed a $203 million programme, and Malawi was still negotiating.
The other issue is conditionality. IMF support assumes countries can implement difficult measures to tackle high debt, inflation and currency weakness. Those measures can increase the pain in the short term.
Kenya is a clear example. Under its IMF programme, the Finance Act 2023 doubled VAT on fuel from 8% to 16%, introduced a housing levy and raised the top income tax rate. When the Finance Bill 2024 sought about $2.7 billion in additional taxes, it triggered nationwide protests and was withdrawn.
In Egypt, the $8 billion programme agreed in March 2024 came with a sharp fall in the pound, from about 31 to 50 to the dollar, alongside repeated fuel price increases. Inflation had already reached a record 38% in September 2023.
We therefore need to watch how IMF programmes are implemented to ensure that structural correction does not hold back development.
Countries still need external financing because, during periods of distress, concessional loans from institutions such as the IMF are generally preferable to borrowing on more expensive terms. An IMF programme can also improve credibility, lower the risk premium countries face when returning to international markets and help limit capital outflows.
Ghana shows that this process can work. It defaulted in 2022, when inflation peaked at 54.1%, but completed its $3 billion IMF programme in July 2026. Inflation is now around 5%, and the country has moved to a programme offering policy support without new IMF financing.
That is the end goal: using IMF support to rebuild the economy and then reducing reliance on it.
How significant are the new agreements with Zambia and Niger in addressing their debt and financing challenges?
Both deals are important, but the key questions are what the funds will be used for and how long the countries have to repay them.
Both are Extended Credit Facility loans, carrying zero interest, a five-and-a-half-year grace period and ten years for repayment. In the current climate, concessional financing is one of the best ways for countries to raise capital without deepening their debt problems.
Zambia has completed the sixth and final review of its previous 38-month programme, under which it drew about $1.7 billion. The IMF has now agreed to a new 36-month deal worth about $1.47 billion.
That makes sense because Zambia is emerging from a default, the first in Africa during the pandemic, and is trying to sustain its recovery. Public debt has fallen from 133% of GDP at the end of 2021 to around 91% in 2025, with most external debt restructured.
The government is raising tax revenue and trying to increase export earnings, especially from copper and other critical minerals. Growth is projected at 5.6% this year, inflation is down to 6.1%, and reserves stand at $6.1 billion.
However, revenue fell short in 2026, Food Reserve Agency spending exceeded its budget, and the IMF still considers Zambia at high risk of debt distress. The new programme is therefore anchored on increasing revenue and raising the primary surplus to 3% of GDP by 2029.
Niger has agreed to a new 38-month programme worth about $203 million, with an initial disbursement of around $36 million expected after IMF board approval in December.
Its deficit is forecast at 3.4% of GDP this year, above the 3% regional ceiling, mainly because of reconstruction following disasters and support for poorer households. Higher oil prices are also providing additional revenue, part of which is being used to rebuild fiscal buffers.
For a country under military rule since 2023, the agreement also signals that lenders remain willing to engage.
Ultimately, what matters most is how the money is spent. Countries can undertake IMF reforms and accumulate more debt only to find themselves back where they started. Borrowing should prioritise capital spending with a positive multiplier effect, helping countries build their own revenue base, sustain productivity and reduce the need for repeated external financing.
What are the main obstacles facing countries such as Malawi that have yet to reach an agreement with the IMF?
In Malawi’s case, there has been some resistance to adopting the stringent measures that typically accompany IMF funding. Reluctance to address the exchange-rate gap, curb inflation and maintain public-finance discipline has made it difficult for the government and the IMF to agree.
The government wants to address deep macroeconomic and structural problems without imposing too much pain on the population. That is understandable. The IMF estimates that nearly half of Malawians cannot afford a basic consumption basket, and poverty could reach 76.6% this year.
The exchange rate illustrates the tension. The government has said devaluation is not part of the negotiations, even though foreign-exchange reserves cover less than three months of imports and queues have formed for dollars needed to buy fuel, fertiliser and medicine.
Part of this caution comes from experience. Malawi devalued its currency by 44% in November 2023 to secure its previous programme, but that programme still collapsed. A weaker kwacha would also feed directly into prices, with inflation at 19.4%.
The IMF wants evidence of fiscal responsibility: that officials are willing to implement the agreed conditions, carry out reforms, spend money responsibly and put the economy on a path to stability.
Malawi’s record makes the IMF cautious. Its previous $175 million programme ended in May 2025 after no review was completed within 18 months, leaving only $35 million disbursed. Since 1988, Malawi has entered eight Extended Credit Facility programmes but completed only two in the past two decades.
With public debt at around 90% of GDP and interest payments projected to absorb more than 40% of revenue, the IMF needs confidence that the numbers will add up.
There has been progress. Following its October visit, the IMF said reforms to strengthen fiscal discipline, reduce debt and improve market functioning provided a good foundation for a programme. The remaining gap concerns the final policy package.
Without an agreement, Malawi will continue seeking alternative external financing to meet budgetary and infrastructure needs, often on less favourable terms. An IMF programme could also unlock support from the World Bank, the African Development Bank and the European Union.
The challenge is to demonstrate genuine fiscal discipline while protecting the most vulnerable.
How effective are current monetary policies, given that several central banks have kept rates unchanged while inflation trends differ?
African central banks are taking different decisions, but their common objective is to keep monetary policy sufficiently tight to bring inflation towards target without placing so much pressure on borrowing costs that growth suffers.
Many of the shocks countries face are external, particularly oil-price pressures linked to the Iran war. Nigeria also faces domestic factors that contribute to inflation, so each country needs to be assessed individually.
The prevailing approach is effectively “higher for longer”. Comparing inflation with interest rates, many countries are maintaining rates above inflation. Egypt’s policy rate stands at 19%, against inflation of 12.8%; Nigeria’s is 23%, against 14.63%; and Ghana’s is 14%, against 5.2%.
Positive real interest rates help keep bonds and other fixed-income assets attractive to foreign investors. Those inflows can support exchange rates and help contain inflation.
Rwanda is an exception: it has raised rates three times, yet inflation remains well above its 8.75% policy rate.
Effectiveness also depends on how monetary policy is transmitted through the financial system. In emerging markets such as Kenya and Nigeria, changes in central-bank rates do not always pass quickly or fully into commercial lending rates.
Kenya reduced its policy rate from 13% in August 2024 to 8.75% by February 2026, a fall of 4.25 percentage points. Average bank lending rates declined more slowly, from 17.2% to about 14.7% over a similar period. The central bank has introduced a new loan-pricing model to strengthen that link.
Keeping rates high can restrict private-sector credit, but business activity has proved more resilient than many expected. Nigeria’s purchasing managers’ index rose to 56.4 in September, its highest level since February 2022.
Temporary measures to contain operating costs have helped in some markets. Kenya, for example, has used subsidies and a temporary reduction in VAT on fuel. By contrast, Egypt’s PMI remained below 50 at 47.2 in September, while South Africa’s manufacturing PMI fell to 45.8 in August.
The overall picture is diverse, but the common thread is that central banks are maintaining relatively tight policy to protect currencies, attract capital and contain inflation.
What factors are driving inflation in Rwanda and Ghana, while inflation has eased in Egypt and Angola?
Africa is not one country. We need to examine each market individually to understand its inflation drivers and determine what comes next.
In Ghana, inflation is low but rising, and the pressure is coming mainly from non-food items. Inflation reached 5.2% in September, with non-food inflation at 6.2%, compared with 4% for food. Non-food items accounted for nearly two-thirds of the total.
Services inflation stood at 8.3%, almost twice the rate for goods. Housing, water and energy recorded inflation of 10.3%, while restaurants reached 9.2%. Transport and fuel costs are also contributing. Ghana’s statistics service indicates that about 86% of inflation now comes from locally produced goods and services.
That helps explain why the central bank is holding its policy rate at 14% rather than making substantial cuts or increases.
Rwanda faces similar pressures, but much more sharply. Petrol rose from 1,989 Rwandan francs a litre in November 2025 to 2,938 francs, while diesel increased from 1,900 to 2,927 francs. Energy prices have risen by about 45% in a year, and a weaker franc has increased import costs.
Higher fuel prices are pushing up transport costs, which in turn are feeding into food prices. Food inflation has exceeded 20%, and overall inflation is around 20%, far above the central bank’s target range of 2% to 8%. Further rate increases are therefore likely to remain under consideration.
Angola offers a different picture. The country maintained high interest rates well before the latest oil-price shock, with its policy rate at 19.5% in 2024. That tight stance is now helping support the currency and contain inflation.
The kwanza has remained broadly stable since late 2024, trading at around 913 to the dollar in September. Because Angola imports a substantial share of what its population consumes, currency stability helps contain import costs. As an oil exporter, it also earns foreign exchange from a sector accounting for more than 90% of exports.
Inflation has fallen to 8.43%, its lowest level since 2015, allowing the central bank to cut its policy rate to 14.75%.
Egypt’s inflation has eased more gradually. Urban inflation fell to 13.9% in September and core inflation to 14.1%, supported by tight monetary policy and a more flexible pound since 2024. However, the path remains uneven, and the central bank does not expect inflation to reach its target until the second half of 2027.
How can African governments balance inflation control, economic growth and the need to protect households from rising living costs?
It is a difficult balancing act. I would highlight five priorities.
First, monetary and fiscal policies must be coordinated. If governments are increasing spending while central banks are also pursuing expansionary policies, the two can work against each other and create additional pressure.
Second, reducing inflation must be a priority for both fiscal and monetary authorities. Nigeria illustrates why interest-rate policy alone is not enough. Inflation fell to 14.63% in September from 20.98% a year earlier, yet the cost-of-living crisis remains severe and food inflation is 19.59%.
The drivers include insecurity, inadequate storage facilities and weak transport networks linking food-producing areas in northern Nigeria to consumers in the south. Fuel and diesel costs also matter.
If public spending addressed these underlying constraints, monetary measures would be more effective and households would bear less of the burden of reforms.
Ghana, by contrast, demonstrates how prudent fiscal spending and appropriate monetary measures can help bring inflation down. Inflation has fallen from 54.1% in 2022 to around 5%, accompanied by a gradual easing in living-cost pressures.
Third, governments need to invest in social infrastructure, particularly healthcare and education. Healthy, productive people are better equipped to withstand economic shocks, while households living in constant financial insecurity can be pushed into deeper hardship by even a temporary crisis.
Fourth, borrowed money must be spent for its intended purpose. If it is not, the expected economic multiplier does not materialise and the improvement in people’s living standards never comes. Properly directed investment can help reduce poverty.
Fifth, governments should invest more aggressively in value addition. Improving special economic zones can attract long-term foreign direct investment, while strengthening subnational governments’ capacity to develop commodities in which they have a comparative advantage can raise export revenues, improve trade balances and generate foreign exchange.
What are the main economic risks and opportunities for African economies in the coming months?
African economies remain resilient, and there are real opportunities ahead, but several risks could slow progress if they are not managed.
Digital innovation is a major opportunity. Startup ecosystems are expanding, and artificial intelligence adoption is creating areas where global investors want to invest. As African countries continue building their digital infrastructure and capabilities, that opportunity should grow.
Climate finance is another. Funding directed towards Africa can strengthen resilience and infrastructure, including energy systems, provided it is used for its intended purpose.
Energy infrastructure also offers considerable potential. The objective should not be limited to energy self-sufficiency; it should be to improve the continent’s overall infrastructure. The Dangote refinery, despite recent crude-supply challenges, and the East African Crude Oil Pipeline linking Uganda and Tanzania illustrate the possibilities. Renewable energy and refining capacity also have room to expand.
Deeper integration under the African Continental Free Trade Area can create additional opportunities through stronger trade relationships and cross-border infrastructure. One example is the proposed Nigeria-Morocco gas pipeline, a project valued at about $25 billion that received backing from ECOWAS leaders in July 2026. The proposed route would follow the Atlantic coast through 13 countries.
Africa’s young population is another important advantage, offering a growing labour force and a substantial market for technology, consumer goods and healthcare.
However, high debt and exposure to external shocks remain significant risks. Oil prices above $100 a barrel and an expected strong El Niño are near-term threats to inflation, food supplies and government budgets. Some countries are building gold reserves to hedge against currency and inflation shocks.
Governance is also a major concern. Corruption, restrictions around elections and the disconnect between ageing political leadership and young populations can hold back policy responsiveness and implementation.
Climate change presents a further challenge. Africa produces less than 4% of global carbon dioxide emissions but suffers some of the heaviest spillovers from climate change.
The opportunities are real, but converting them into lasting development depends on better governance, disciplined public spending and investment that strengthens productive capacity rather than simply increasing expenditure.
Source: africa.dailynewsegypt.com
