IMF’s Selassie on how the Russia-Ukraine war impacts African economies

Abi Selassie, the Director of the International Monetary Fund's African Department, recently spoke with CNBC Africa about the implications of the Russia-Ukraine conflict on African economies. Selassie highlighted the various channels through which the war is expected to impact the continent, including rising food prices and increased oil prices. With the uncertainty surrounding the situation, Selassie mentioned that the IMF is in the process of revising its economic growth projections for Africa for 2022 and 2023. The war in Ukraine has led to a spike in wheat prices, impacting countries in Northern Africa, especially South Africa, where wheat consumption is significant. Additionally, other grains such as maize are also expected to see price increases due to potential substitution. Selassie emphasized that food consumption forms a substantial portion of household spending in African countries, making the rise in food prices a critical issue. Furthermore, the surge in oil prices is a major concern, with most African countries being net fuel importers. This is likely to lead to wider current account deficits and price pressure in the region. The ongoing pandemic has already strained the economies of many African countries, and the war in Ukraine adds another layer of shock that policymakers need to address. Selassie acknowledged the diverse economic circumstances within Africa and highlighted the need to distinguish between short-term and long-term effects of the conflict. While net oil exporters may benefit from higher oil prices in the long run, the immediate impact on balance sheets and consumer prices poses challenges. In terms of inflation, Selassie stressed the interconnected nature of the global economy and the ripple effects of rising prices on African countries. Higher food and fuel prices are expected to exacerbate inflationary pressures, particularly affecting households that allocate a significant portion of their income to these expenses. However, Selassie noted the importance of country-specific responses to inflation and advised policymakers to strike a balance between maintaining economic activity and managing inflation. With regard to policy responses, Selassie highlighted the need for countries to assess the size of the shock and develop a calibrated approach to adjustment and financing. He emphasized the importance of targeting support for vulnerable populations impacted by soaring commodity prices. On the monetary policy front, central banks face a delicate balancing act between managing inflation and supporting economic growth. Selassie recommended a nuanced approach to monetary policy based on each country's specific circumstances. The IMF is actively engaging with African governments to determine the appropriate policy responses and provide support during this challenging period. Selassie mentioned that ongoing discussions with finance and central bank officials are aimed at understanding the countries' needs and preferences for IMF assistance. While there have been no discussions regarding an additional special drawing rights allocation, the IMF stands ready to offer financial support through its lending facilities. Selassie reiterated the IMF's commitment to assisting countries in navigating the economic repercussions of the Russia-Ukraine conflict and reiterated the organization's ethos of providing aid during times of financial stress.