Transcript

Abebe Aemro Selassie Media Roundtable

February 5, 2024

Ms. Mossot: Good morning and welcome to the International Monetary Fund Regional Press Briefing. I am Tatiana Mossot with the Communications Department. I am joined by Abebe Aemro Selassie, the Director of the African Department at the IMF. Over the next 30 minutes, you will give us [Abe] an overview on sub-Saharan Africa outlook, the challenges and how the Fund is engaging with countries. Abebe, the floor is yours.

Mr. Selassie: Thank you, Tatiana. Good morning and good afternoon to those in the region. Before starting and taking your questions, I want to say a few words about how we see recent regional developments. As we have put out recently in our World Economic Outlook update, what we see in sub-Saharan Africa as elsewhere is continuing pickup in activity into 2024. Specifically, we expect growth to accelerate from 3.3% last year, to around 3.8% this year. Also on the positive side, we see inflation continuing to decelerate, having peaked earlier in the year. We see median inflation now closing at around 6%, which is about 4% percentage points lower than it had been at the beginning of 2023. Also encouraging is that we see both domestic and foreign investment picking up through 2023, which bodes well for activity in 2024. On the policy side, also, we have seen governments making a strenuous effort to stabilize public debt, and our estimates now suggest that public debt will have stabilized at around the 60% mark following about a decade of sustained increase in public debt levels. That said, we do continue to see a very difficult policy environment external environment in particular for policymakers and countries in the region. Global financing conditions, even if they have eased a little bit, remained fairly difficult for most countries as evidenced by continued pressure on foreign exchange rates for example. Capital flows also remain attenuated, notwithstanding Cote D'Ivoire's recent issuance a couple of weeks ago. Overall, we are continuing to expect conditions to remain difficult and active, even though it is accelerating to 3.8% to be markedly lower than the region's potential. So, much work to be done in terms of reinvigorating reforms and also, with a view to tapping the region's tremendous potential. From the Fund side, playing of this difficult financing backdrop, we have in particular been providing extensive support to members, in support of the reforms that countries are pursuing. Over the last three months since October, when I did this the last press briefing, we have disbursed around $3 billion. And the total commitments we have under the programs approved by our Board are to the tune of around $19 billion through the end of the program period that we have with various countries. Encouragingly also, we are increasingly beginning to use newer facilities, particularly the Resilience and Sustainability Trust (RST), to support member countries. We now have six programs like under the RST to support countries reforms to strengthen their resilience against climate change. Let me stop here and see if you have any questions, which I would be very happy to answer.

Questioner: I have a couple questions. One on Senegal. So is the postponed election potentially a risk for Senegal's economy and IMF program, and then moving eastwards in the region, what would the economic impact of Niger, Burkina Faso, Mali leaving ECOWAS be on their economies and the region and even were even leaving the monetary union, which some policymakers have speculated. Could this also endanger Niger, Burkina's IMF programs. Thank you.

Mr. Selassie: On Senegal, of course, political uncertainty can be detrimental to economic activity. We must think beyond the IMF program and about making sure that Senegal passes through this political difficult, difficult period of political tension successfully. That is all I have to say. I mean, developments have been very recent, and I would leave it there on Senegal. We have, of course, watched with concern. We have been following developments with concerns in Mali, Niger, and Burkina in recent weeks, particularly the announcement that they intend to leave ECOWAS. I have to say that for now things remain fluid and it is too early to say what the implications of this will be. Our sense is that negative effects will mainly be felt through the three countries should they exit ECOWAS, the trading bloc. Of course, there are other political and social, administrative dimensions to it, but, from a trade perspective, leaving the bloc would see a lot more trade friction. And of course, these countries are already landlocked, already facing quite a bit of transaction costs in terms of their trade with the rest of the world now, risk facing even higher transaction costs, which would be detrimental to those countries. But as I said, it is still a bit too early. We hope that dialog can be triggered that will allow the two countries to remain within ECOWAS. As you said, there has been no announcement about potential exit from WAEMU. So, I think it would be really very highly speculative to go there. Thank you so much.

Questioner: I think it would be better if I can ask you a question about the debt relief efforts of the sub-Saharan African countries. I would like to have a comment of you about the efforts that are being made, especially the viability of mechanisms to convert debt into climate finance. And I have in mind specifically the agreements signed last year between Cabo Verde and Portugal to convert that into climate finance. What is your opinion about this? To think that they are viable solutions, and this mechanism can be replicated in other countries.

Mr. Selassie: Thank you. We have quite the difficult challenges that countries are facing of course here, and solutions are being sought to see if the two can be made to work with each other. We are talking about of course climate change which poses a huge risk to many of our countries, and the very elevated public debt in many countries. In Cabo Verde, it has been with a lot of interest that we have been following this proposal. First, I should say from the Fund side, Cabo Verde is one of the countries that is making use of the Resilience and Sustainability Trust. So, we are providing some financing for the government to pursue measures that will strengthen the country's ability to deal with climate shocks. Another important aspect of this work is going to be to create forum in which discussions can be had to raise more climate financing that can help ease Cabo Verde's climate burden over time. This debt for climate swap that has been put on the table and the authorities are working on with Portugal is one such initiative that can help Cabo Verde. The key will be in how it is designed, and in particular making sure that the new financing that is coming is on terms that will actually benefit Cabo Verde and not entail additional spending, which would leave the country in a position where it may not be able to benefit from this as much. So, a lot will depend on the details of this deal. But absolutely, I think this is one of the areas of work that we hope to be doing a bit more to see how we can help countries address the threat they face from climate change.

Questioner: I had a couple of questions. One was on a reform across the sub-Saharan Africa region, particularly given the difficult financing conditions that you talked about at the beginning. I wanted to know if you are making the progress that you wanted to see or if you are finding countries are lagging in terms of the reform’s efforts, in particular, given what we appear to be now working in conditions in West Africa with the Senegal story, as well as the Ethiopia side of it. The second question is about critical minerals. I wanted to know if the IMF has a strategy around helping African countries in developing sound strategies on this, particularly given the prevalence of the minerals on the African continent.

Mr. Selassie: So, on the first question, there is quite a mixed experience. There are great heterogenous experiences in terms of how countries are dealing with both economic, more political, and sociopolitical challenges. What I can tell you is that the region has faced a tremendous amount of exogenous shocks over the last three or four years. I have described these as having been brutal. The pandemic itself, of course, which was followed by the dislocation in global supply chains, higher commodity prices, particularly for food and fuel that followed the war in Ukraine. And more recent months also have been not exactly favorable to the region. And all of this, on top of very acutely difficult economic conditions, financing conditions, the likes of which the region has not seen for many, many years. In the context of this, honestly, I am struck by the resilience of countries. This is not to deny how much dislocation there has been on people, particularly the most vulnerable groups, the poor. And this dislocation, of course, includes some political tensions that have boiled over into acute violence. All this said, given how difficult and brutal the shocks have been, we must give policymakers for having, for trying to be navigating through a very, very difficult period. And the pickup in growth is very encouraging. But for me, also, really the policies underpinning this pickup in growth; control on inflation, as I mentioned earlier, it has started to decelerate; as well of course, the fiscal adjustment that countries have been pursuing, which has allowed debt to stabilize in many cases. We have also seen a range of reforms to facilitate some of this adjustment; the exchange rate sphere in places like Malawi, Nigeria - difficult as those reforms have been. These are all in the direction of the adjustments that have been needed. So, a lot of encouraging signs, even in a period of difficulty. So, I will leave it there.

Questioner: Thank you so much for this opportunity. Very quick question to Abe. We have seen there was a meeting with the Fed where it chose to stay path on rates as well as Cote d'Ivoire going to market. Does this significantly boost the odds for countries like Kenya in terms of returning to market? We have been talking for a while about the funding squeeze. And secondly, and very quickly, Kenya has spoken to the World Bank about structuring a diaspora bond. Do you see that being feasible within the current year? Thank you.

Mr. Selassie: Thanks. The Cote D'Ivoire's return to markets was a very encouraging sign. I think it plays off many years of strong reform and having kept macroeconomic imbalances well contained. We see in Kenya also very solid and very, very strong efforts having been made to make sure that macroeconomic imbalances are contained. We are particularly pleased by all the structural reforms that the government has been doing, including fiscal reforms to keep the primary balance at a level which will stop, which is stabilizing debt and continuing to make sure that it can trend downwards in general. It is kind of efforts like this that have often been followed by market access. So hopefully with the easing of financing conditions that are expected going forward, Kenya can, in due course, return to markets. And, until through then, as we have indicated time and again, we will continue to support this program because it remains well on track and policies have been calibrated to what is needed as evidence, by close to $950 million augmentation we just provided Kenya. So, I suspect that, in due course, Kenya will be able to return to markets. And I hope that conditions will have eased so that this can be sooner rather than later. This includes, trying new instruments like perhaps a diaspora bond that the Kenyan governments have been talking about. So, I think, we are hopeful that Kenya's progress will continue.

Questioner: Thank you for your time this afternoon, Abe. Much appreciated. The world economic outlook update that were released some weeks ago had some really interesting tidbits in it. And one of the things that it said was, we need a much faster resolution to the debt crisis we have on the continent. So, in that context, from the IMF's perspective, what needs to be done to untangle this comparability of treatment problem that Zambia has run into, Ethiopia is running into as well, because that seems to be the sticking point that we keep seeing with a lot of the debt negotiations at the moment. And then just with regard to the baseline that we have at the moment, is the Fund's baseline assumption that markets for sub-Saharan African issues will still largely be closed off pretty much for all of 2024, because we still at this point do not have any clarity on when the Fed might actually start to cut rates sort of building on my colleague's question there because at this point, it is still unclear. They are saying yeah, a rate cut might be coming, but when exactly, no one knows.

Mr. Selassie: On the first question on the effectiveness of the common framework and discussions that are going on, I want to, again stress that, quite honestly, like relative to how long official debt restructurings have historically taken place, the speed at which debt has been reprofiled under the common framework, even if it is slower than what we would like to see, that some countries would like to see, it has been quite good. And, from one case to the other, we have seen an acceleration in terms of the effectiveness of the common framework. This said that it is nowhere near how effectively the common framework needs to work to be nimble, agile, consistent with the needs of our country. So, we think there are reforms to be made. I think an important initiative in this regard that we have taken as an institution is the Global Sovereign Debt roundtable, which has been a forum where many of the intricate issues that have been coming up in individual country cases can be discussed. The issues include comparability of treatment. And how we can make progress is making sure that more cross-cutting issues like comparability of treatment, do not become a blockage to individual countries' reprofiling cases. So, we are hopeful that the GSDR can make progress and some of the issues that have been raised. On the issue of market access for the region as a whole, what we have seen for many months now has been a lot more discrimination by markets. And I suspect that will continue going forward even if the Fed were to cut rates. In line with market expectations, I suspect that just as kind of the loss of market access was, the return to markets will also be a bit more country specific. So, I hesitate to give you a more generalized picture, but we are hopeful that a combination of both the strenuous efforts that many countries have been making to get macroeconomic imbalances under control, coupled with, easier market conditions, will allow other countries to also tap markets going forward. This is an area that we are working on individually and each country case on what the right timing would be appropriate. But at the same time, it is important for countries to remain prudent and avoid just tapping markets just for tapping markets sake and locking themselves into high borrowing costs. There is a balance to be struck here.

Questioner: Yes, I did. And it follows from what my colleague was asking about specifically. Firstly, when do you expect Zambia's creditors to find a way forward so that it can finally reach a resolution to its debt restructure? Will this require compromise on all sides or just from one creditor, do you think? But also following on from what you said about the currency treatment and just all those subjects showed, if there is a need for more quantitative comparability of treatment formula rather than it being a sort of qualitative, case by case thing, that can hold up such a long process. It is like in Zambia's case, they keep.

Mr. Selassie: In the case of Zambia, you know, the discussion, it is fair to say, is now firmly in the in the court of the OCC, the official creditor committee. And we are hopeful that a decision can be made by the official creditor committee on how they see things sooner rather than later. We are trying to urge all sides to come to a compromise. But I think that is where things are at the moment. Now, on the point about compatibility of treatment and formulas that would be needed to make it easier to calculate these things. Absolutely! That is exactly the point I was making earlier about how important the global Sovereign Debt roundtable will be as a forum where such discussions can be had, and certain principles can be laid out. But I can tell you, having been involved in a few of these cases, that there is a myriad of issues that arise when you are trying to calculate things like compatibility of treatment. It is not an exact science because the terms of lending and all manner of issues that that have to be taken into account. But progress is being made. That is the point I want to make. Again, it is very, very frustrating for, of course, our staff working with authorities that we are trying to help as much as possible. And, you know, God knows even more frustrating, of course, being on the authority side, wanting to put this behind them. Progress is being made and I think there are new creditors around the table, new processes that need to work. And we are doing everything that we can to make sure that these processes work.

Questioner: We have the question from Ghana. The journalist was asking an update on the situation on Ghana.

Mr. Selassie: So, Ghana program, is being implemented effectively. We just went to the board recently with the first program review following, of course, the policies that the government has been putting in place to address the huge imbalances Ghana was facing through last year. And of course, the official creditors signaling that they will provide debt relief, consistent with what Ghana needs. So, we just went to the Board a couple of weeks ago. What I can say is that going forward is would be really, really important that Ghana continues to implement the program that they have developed as envisaged. That is really critical. These programs are designed to be implemented over three, four years. And it is important that, you stick Ghana's sticks the course and see the program being implemented over the next three years. So, we look forward to continuing to support Ghana, consistent with program implementation.

Questioner: I would like to ask a more general question. How do you evaluate the growing competition between international players for influence in Africa and for African resources? Do you consider that there is a risk of fragmentation at the continental level, or is this competition somehow jeopardizing the integration effort? Because I think that you can see some results of that competition already.

Mr. Selassie: Thanks, I think, there often tends to be, outside of the region, a sense that Africa belongs to one side or another. When I speak with policymakers, they are much more pragmatic about things, what they are doing often is in the self-interest of their people, their country. Within the region, I think they see countries wanting to maintain as broad a set of trading and diplomatic relationships as possible, rather than wanting to be seen to be belonging in one camp or another. I hope that, in many cases, the region has gone beyond the kind of what used to happen in the 1980s, for example, where countries align themselves with one side or another or forced to, I should say. And I think now the region being an influential voice in international forum, I think there's much more scope for countries to have a range of partners depending on, self-interest rather than beginning to view, belonging to one camp or another. It has indeed been the case that we have seen in some countries, changes, and alignments. But I think this is part of the course. But in the vast majority of countries, I see them maintaining a broad range of engagements with the international community.

Ms. Mossot: I think we have been able to take all your questions. Just a quick reminder that the content is under embargo until 9.30 am. Washington, D.C. time. Thank you very much Abe for this dynamic and very informative press briefing. To go beyond the statistics and the headlines, please follow us on IMF.org and all the IMF social media platforms. Thank you all.

Mr. Selassie: Thank you. All