The World Bank Group says Nigeria and other economies in Sub-Saharan Africa are effectively tackling their economic challenges, including exchange rate crises.
In a report released yesterday, the bank said the management of the region’s economies has improved with the average score edging up to 3.2 in 2021 from 3.1 the previous year.
It said in the 2022 Country Policy and Institutional Assessment (CPIA) report that the development reflected improved monetary and exchange rate policies.
The report measures each country’s quality of policies and institutional frameworks, as well as the ability to support sustainable growth and poverty reduction from January to December 2021.
Analysis of the report showed that Rwanda maintained its highest CPIA score of 4.1, leading rankings for the seventh year in a row. Kenya improved slightly with an average score of 3.8, joining Cabo Verde with its unchanged score of 3.8.
Nigeria was number 21 on the list, behind Benin and Senegal which achieved an average score of 3.7. Benin upgraded its CPIA score in 2021 from 3.6.
“The overall average score for Sub-Saharan Africa’s International Development Association-IDA -eligible countries remained unchanged in 2021 at 3.1.
The overall score helps determine the size of the World Bank’s concessional lending and grants to low-income Sub-Saharan African countries,” the report said.
Continuing, the World Bank report said: “Monetary and exchange rate policy was essential in dealing with inflationary pressures without jeopardizing the recovery process and keeping public debt sustainable. Inflationary pressures were contained in the West and Central Africa subregion owing to the fixed exchange rate regime prevailing in the common currency of West African Economic and Monetary Union (WAEMU) countries and Central African Monetary and Economic Community (CEMAC) countries”.
It, however, said that public sector management and institution remain overly weak as the regional average public sector management score was 2.8 in 2021, unchanged from the last two years.
“This score shows that African countries underperformed in the public sector and governance compared to other IDA countries. West African countries score 2.7, and Southern and Eastern African countries score 2.4.
“This gap is due to the high number of fragile countries in Southern and Eastern Africa facing significant challenges on property rights, rule-based governance, transparency, and accountability. These results highlight the need to assist these countries in reforming their public institutions,” it said.
According to the report, debt vulnerabilities grew considerably over time in the region, with the combination of weak growth prospects, tightening financial conditions, weaker currencies, and widened sovereign spreads.
“In 2021, IDA-eligible countries in the region were at moderate or high risk of debt distress, and the share of countries at high risk of debt distress grew from 52.6 percent in 2020 to 60.5 percent in 2021,” it said.
“Given the elevated debt levels and a growing number of IDA countries in high or moderate risk of debt distress, aggressive tightening of financial conditions could trigger flights to safety, which could subsequently weigh on domestic currencies, leading to massive depreciations and likely causing financial crises,” the report added.
“Alternative policies to create more fiscal space for social protection policies could include prioritising and improving the efficiency of public spending on poorly targeted subsidies and repurposing public spending to achieve better outcomes in the food and energy sectors,” it said.