Finance in Africa: Navigating the financial landscape in turbulent times

1

Macroeconomic situation
in Africa

This chapter is authored by Colin Bermingham and Emmanouil Davradakis of the European investment Bank. The authors acknowledge 
with gratitude the contribution from Koray Alper of a box on risk premiums for African sovereigns. 
The authors would like to thank Claudio Cali, Barbara Marchitto, Debora Revoltella and Ricardo Santos for their comments on earlier 
versions.
The views expressed here are those of the authors and do not necessarily reflect those of the European Investment Bank. Any errors are 
the responsibility of the authors.

Key messages 

The war in Ukraine is another shock to the African continent as it recovers from the coronavirus pandemic. 
Many African countries were already facing additional challenges in supporting domestic economic growth 
compared to advanced economies for reasons including less fiscal space, less comprehensive vaccine coverage, 
lower levels of investment and more vulnerability to changes in international risk appetite. The rise in inflation 
due to higher food and energy prices means households are seeing their incomes squeezed, pushing more people 
into poverty. COVID-19 has stretched the capacity of fiscal policy in emerging and developing economies to 
contain the food shock and safeguard social stability. Indeed, fiscal consolidation is expected to continue on the 
continent in 2022 but the cost of servicing debt is also increasing, not least because central banks continue to 
increase interest rates to deal with high inflation. This means debt sustainability problems could spread to more 
countries but mechanisms to deal with insolvent countries remain slow, given an increasingly diverse set of 
creditors. The increased lending to governments by banks during the pandemic also risks crowding out lending 
to the private sector.

Finance in Africa: Navigating the financial landscape in turbulent times