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East Africa Macroeconomic Outlook, Vol. IV

Cautious optimism amid economic turbulence


Welcome to Volume IV of the East Africa Macroeconomic Publication, where we explore the theme ‘Cautious optimism amid economic turbulence’. This publication provides a comprehensive overview of the current economic landscape in the region with a focus on the key themes that are shaping the outlook for the coming year. The last year has been challenging for the East African region, with increased global commodity prices, subsequent higher cost of living, an ensuing series of monetary tightening stances, currency depreciations and overall debt distress. The residual effects of these challenges continue to plague the East African countries and have posed macroeconomic headwinds. Despite these headwinds, we remain cautiously optimistic about the outlook for 2024 for the region, with expectations of abating macroeconomic challenges and better global growth outcomes in the medium term.

This year’s publication explores the following four key themes that are shaping the macroeconomic outlook for East Africa:

Trade and investment are essential for economic growth in East Africa. We examine the latest trends in trade and investment in the region and discuss the policies that can beimplemented to attract more foreign direct investment.

The effects of the Ukraine conflict precipitated global inflation and as a result, currency depreciations world over. East Africa, on account of its net importer status, was particularly vulnerable to imported inflation. This resulted in increased input costs, a high cost of living and subsequently, declining consumer demand.

Central banks in East Africa have faced a difficult balancing act, with the need to tighten monetary policy to combat inflation while not stifling economic growth. The United States Federal Reserve rate, which currently sits at a 22-year high, has resulted in capital flight from emerging markets as investors look to derisk in search for lucrative and nearly inflation-free investments. This resulted in a decline in foreign investments in East Africa and consequently, a general economic slowdown.

The COVID-19 pandemic has led to a significant increase inpublic debt levels in East African countries, with the recent funding squeeze on account of high interestrates, elevated sovereign debt spreads and currency depreciation further raising the cost of debt. The publication assesses the fiscal policy challenges facing the region and discusses the options for ensuring debt sustainability.

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