The East Africa region experienced a decline in economic growth (GDP) from 4.7 percent in 2021 to 4.4 percent in 2022. However, despite this slowdown, it still outperformed Africa's average of 3.8 percent, only trailing Central Africa's average of 5.0 percent.
The African Development Bank (AfDB) unveiled these insights in a report released on Thursday, July 27.
The growth slowdown was attributed to various factors, including a global economic deceleration, soaring commodity and energy prices due to the Russia-Ukraine crisis, adverse weather conditions, tightening global financial conditions, political instability, the lingering impacts of COVID-19, and mounting public debt.
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Ethiopia, Kenya, Rwanda, Seychelles, Tanzania, and Uganda stood out as the best-performing countries, while Burundi, Comoros, Djibouti, Eritrea, Somalia, South Sudan, and Sudan recorded lower growth rates.
Notably, two countries, namely Sudan and South Sudan, are estimated to have remained in recession throughout 2022.
In contrast, Seychelles experienced the highest estimated growth of 9.5 percent, driven by thriving tourism, fisheries, and financial services sectors.
Here are the five major findings from the report:
Services Sector Shines
In 2022, the services sector played a pivotal role in contributing almost half of the region's GDP growth, with agriculture and industry contributing nearly one-quarter each.
The service sector contributed 2.0 percentage points to GDP growth, albeit slightly lower than the 2.5 percentage points average recorded from 2015 to 2021.
The region's natural and cultural attractions continue to lure tourists from around the world, resulting in a high demand for services like accommodation, food, and entertainment.
Furthermore, the growing urban population has generated increased demand for services such as transportation, communication, and retail.
The rise of a middle class, accounting for 22.6 percent of the region’s population, also fuels demand for services like banking, insurance, and healthcare.
Relatively Stable Macroeconomic Fundamentals
Despite facing multiple challenges, East Africa's macroeconomic fundamentals remained relatively stable in 2022.
Inflation decreased from 40.7 percent in 2021 to 28.9 percent in 2022, primarily due to tighter monetary policies implemented by most countries in the region.
The region's fiscal deficit also improved, falling from 5.3 percent in 2021 to 4.3 percent of GDP in 2022. However, Kenya, Rwanda, and Uganda had higher fiscal deficits than the regional average, mainly due to large public infrastructure projects and debt service obligations.
Eight out of 13 countries recorded a deterioration in their current account balances, primarily due to high import bills, weak export recovery, and a surge in external debt service. Notably, Seychelles, South Sudan, and Sudan managed to narrow their current account deficits due to reduced spending and a recovery in the services sector in Seychelles.
Pressure from Debt and Funding Squeeze
The region faced considerable pressure from debt and funding squeeze, with the average total public debt as a share of GDP remaining at 57 percent in 2022.
Eight out of 13 countries experienced a deterioration in their current account balances due to high import bills, weak export recovery, and increased external debt service. Rising international interest rates, influenced by the higher United States (US) federal policy rate, escalated debt service costs and spreads on international borrowing.
East Africa had nine countries listed on the Highly Indebted Poor Countries (HIPC) list, namely Burundi, Comoros, Eritrea, Ethiopia, Rwanda, Somalia, Sudan, Tanzania, and Uganda.
Brightest Prospects Ahead
East Africa's economic growth is projected to strengthen in 2023 and 2024, becoming the highest among all African regions.
Economic growth in the East African region is anticipated to accelerate to 5.1 percent in 2023 and 5.8 percent in 2024, primarily driven by a rebound in economic growth in Uganda (6.5%), Ethiopia (5.8%), Kenya (5.6%), Djibouti (5.4%), and Tanzania (5.3%) in that order.
The recovery in these selected East African countries will be facilitated by the pandemic's subsiding impact on the services sector and improved export performance.
However, the current clashes between Sudan's military and the country's main paramilitary force pose a threat to regional stability and may potentially lower the projected growth rates.
Persistent Downside Risks
Despite the positive growth outlook, there are external and domestic downside risks that could impact the region's economy.
External risks include a global economic slowdown, further commodity price volatility, the continuation of the conflict in Ukraine, a slowdown in international trade, tighter global financial conditions, rising debt service costs, and the possible resurgence of COVID-19.
Domestically, risks include substantial infrastructure gaps, escalating domestic conflicts and political instability, adverse climate change impacts, and a high level of macroeconomic uncertainty.