Sierra Leone Telegraph: 23 April 2017
The World Bank and IMF Spring Meetings that began two days ago, have ended today, 23rd April 2017, with little good news about the economic outlook for Sub-Saharan Africa. After almost a decade of slow and sometimes stagnated growth, most African countries will see their economies grow by about 2.5% this year, according to the IMF.
Speaking at a conference today in Washington, USA, the Director for African Department at the IMF – Abebe Aemro Selassie, made a sobering analysis about “the macroeconomic situation in Sub-Saharan Africa, the near-term outlook, and the policies and reforms that we think are necessary to basically foster the stronger and durable economic growth that we all seek and create the many jobs that Sub-Saharan Africa needs.” This is what he said:
As many of you know 2016 was a difficult year for many countries. Economic growth in 2016 we estimate only reached about one and a half percent, which is the weakest outcome in more than 20 years and well below the rate of population growth.
While a number of countries continued to grow robustly the slowdown in growth has been fairly broad based, affecting about two-thirds of the countries in the region. That accounts for about four-fifths of regional GDP.
This of course contrasts with the very robust growth rates the region was experiencing in recent years. We have also noticed that inflation has begun to accelerate in some countries, reflecting the widening of macroeconomic imbalances, some currency depreciation, and in a few cases, drought related food price increases.
Looking ahead we see a rebound in growth, but only a modest one, so around two and a half percent in 2017. This will fall short of the recent trends and will be barely sufficient enough to deliver any per capita income gains.
The uptick in growth is largely driven by one-off factors in the three largest economies— a recovery in oil production in Nigeria, higher public spending ahead of elections in Angola, and the fading of drought effects in South Africa.
Sub-Saharan Africa is a very diverse region and this aggregate number hides the fact that there are quite a few countries that continue to grow fairly robustly at five percent, even up to seven percent, particularly in West Africa and also some countries in East Africa. (Photo: Director for African Department at the IMF – Abebe Aemro Selassie).
That said, going forward the outlook is subject to considerable downside risks from the external side.
The global environment — while improving — remains a challenging one, particularly the financing constraints facing the region.
Also, the scope for domestic shocks is fairly significant, either from insecurity or from some countries dealing with drought type situations. In this context, I want to stress how concerned we are about the famine in South Sudan and the severe border security in Northeast Nigeria, which has created significant humanitarian concerns along with the region’s conflicts are behind some the problems.
These need to be addressed as soon as possible, paving the way for stronger humanitarian systems to be put in place, but more importantly, economic conditions to revert back to normal.
Let me also say a little bit more about economic policies. You know, these overall weak economic outcomes have to do with insufficient policy adjustments that we’ve seen to date. Particularly in the resource intensive countries adjustment has been delayed.
In the countries hardest hit by the commodity price decline, especially oil exporters like Angola, Nigeria, and CEMAC, the budgetary revenue losses and balance of payment pressures are continuing. The delay in the much-needed reforms is creating uncertainty, holding back investment, and risks generating even deeper difficulties in the future.
We are also seeing vulnerabilities in many non-resource intensive countries that are oil importers. While these countries have generally maintained high growth fiscal deficits in a number of cases they are beginning to widen as governments seek to address their development needs. And as a consequence, we’ve seen debt levels beginning to creep up and also borrowing costs on the rise.
So, in view of these challenges, what needs to be done to restart growth and address the vulnerabilities that we are seeing? We see three priorities to engender stronger and durable growth. First is a renewed focus on macroeconomic stability. This we think is the prerequisite to realize the tremendous potential that the region has.
For the hardest hit multi exporters fiscal consolidation will be very important with a strong emphasis on revenue mobilization. This is needed to halt the decline in international reserves and to offset the permanent revenue losses, especially in the CEMAC region. Elsewhere exchange rate flexibility is another issue.
Wherever there is scope for exchange rate flexibility, I think that flexibility has to be used, including by eliminating the exchange restriction to help absorb the shocks that these countries are subject to.
For other countries in the region, and in particular those countries where growth is still strong, it will be very important to address emerging vulnerabilities from the position of strength that many of these countries are now in.
While the expansionary policy, fiscal policy has been appropriate, now is the time to shift towards gradual fiscal consolidation. Higher revenue mobilization is needed to safeguard debt sustainability and the efficiency of investment spending would need to be enhanced. We see a second priority being structural reforms to help support macroeconomic rebalancing. In particular structural measures are needed to help improve the fiscal accounts to a more sustainable position. This includes reforms like revenue mobilization with a focus on shifting away from the focus on relying on commodity related revenues and debt financing to more robust sorts of tax revenue.
There’s also the need to strengthen public finance management systems and frameworks, to do better project selection. Important here also at this juncture where we are seeing bank balance sheets being impacted, is the strengthening of financial supervisory capacity.
Finally, policies to foster economic diversification will be very important in the coming years, again with a view to moving countries away from commodity dependence where that is the case.
Third, another important area of focus, particularly at this juncture, is going to be strengthening social protection mechanisms to help alleviate the impact of the current slowdown on the most vulnerable groups.
At this juncture, you know, reflecting the low growth and widening macroeconomic imbalances, of course we see significant risk of social dislocation in the coming months. We were seeing a bit of decline in poverty in the region over the last many years.
Existing social protection programs in the region are often fragmented, not particularly well targeted, and generally cover a very small share of the population. We see tremendous scope to better target these programs and use the savings from aggressive spending on other parts of the budget — such as fuel subsidies — to better target these resources to help vulnerable groups.
Before ending, I just want to say that we see Sub-Saharan Africa as being a region of tremendous potential and have no doubt that in the coming years we’ll begin to tap into this potential.
However, reaping this potential requires strong and sound domestic policy measures, as I just laid out. The earlier that these can be put in place the earlier the prospects of a stronger recovery.
Let me stop here and just mention that our twice yearly regional economic outlook for Sub-Saharan Africa will be launched on May 9. The launch events will take place in Abuja and Dakar. Thank you very much.