Transcript of a Press Briefing on the IMF Africa Regional Economic Outlook
September 16, 2006Abdouyale Bio-Tchané, Director, IMF Africa Department
Singapore, September 16, 2006
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Director, African Department
Deputy Director, African Department
Deputy Director, African Department
Sr. External Releations Officer, External Relations Department
Ms. Bhatt: Good morning, and welcome to this press briefing on the IMF's latest report on the African Regional Economic Outlook. I am Gita Bhatt from the IMF's External Relations Department. Let me introduce you to Mr. Abdoulaye Bio-Tchane at the center, who is the Director of the African Department. We have to my right Siddharth Tiwari, who is the Deputy Director of the African Department. To Mr. Bio-Tchane's right is Benedicte Christensen, also Deputy Director of the IMF's African Department. Copies of the report and the press release in both English and French are available at the back of the room, as well as on the press desk. Mr. Bio-Tchane will make brief opening remarks and then we will open the floor to questions.
Mr. Bio-Tchane: Thank you, Gita. Good morning, ladies and gentlemen, and welcome to this press briefing. Let me say a few words of introduction before I take your questions. We just issued a report in the back of the room that you could pick up after the meeting. Let me highlight a few points on our findings in the report.
The most encouraging point in the report is that 4.8 percent economic growth in Sub-Saharan Africa continued to be strong in 2006, after the good performance we witnessed in 2005, with 5.6 percent. This is largely because of a temporary slowdown in oil production in oil-exporting countries, particularly in Nigeria, as you know, and in other countries, Chad and Equatorial Guinea.
Another demonstration of that robustness of growth in Sub-Saharan Africa is that, while we do expect growth to decline from 5 percent in 2005, as I said, to 4.8 percent, and this is mostly coming from also oil-importing countries, as a matter of fact growth performance in oil-importing countries remain very strong and we expect it next year to continue.
In 2007, we set GDP growth for the overall region as a whole to rise at about 6 percent. In oil-exporting countries growth could accelerate to 10 percent mainly because of oil production rising in Angola, and Equatorial Guinea particularly. Meanwhile, growth in oil-importing countries should hold steady, as I said, at 4.6 percent. Inflation also appears benign despite the increase in world oil prices that pushed prices higher across Sub-Saharan Africa last year. As you know, since 2004, we have now inflation at single digits as an average in Africa and this holds in 2004, the best performance in the last 25 years. In fact, if you exclude Zimbabwe, the average inflation rate across the region should decline from above 8 percent in 2005 to below 7 percent this year, and this decline should continue in 2007.
So, while this is a favorable picture of 2006, it is not without downside risks. If global imbalances and tighter monetary policies cause a decline in export demand, and if nonfuel commodity prices fall by more than expected or oil prices, of course the region will witness this situation and, of course, be affected. As you know, there is also some political risk in some of the subregions, not to mention Cote d'Ivoire and, of course, the Great Lakes region.
This edition of the regional outlook also homes in on the special policy challenges higher oil prices present for governments in sub-Saharan Africa. First, in many countries in Africa, the impact of higher fuel prices on growth has been partly or fully offset by rising prices for nonfuel commodities. As a matter of fact, when you look at the report you will see that from 2003 to 2006, while oil prices have risen by 150 percent, commodity prices have risen by almost the same amounts, except from cotton.
Second, oil producers are saving an increasing proportion of their oil revenue, which is, of course, commendable, but at the same time we know that they need to spend to reach the MDGs. They need to spend in education; they need to spend on health; and they need to spend in all these social sectors. Therefore, we need to address the Public Expenditure Management weaknesses that will allow the countries to spend more and effectively in those sectors.
Third, and finally, higher oil prices have affected the income of the poorest people in the region. Many countries have continued to use indirect means (such as subsidies for kerosne and other indirect income transfers) to shield these groups from income losses. Our policy advice is constantly that we prefer them to take direct measures to address the vulnerabilities in those sectors and particularly to alleviate the impact on the poorest part of the population. So, this is, in short, what we have in the report and I would be, of course, very happy, with my colleagues, to take your questions.
Question: Several questions. One is Zimbabwe's inflation has gone over 1,200 percent. How much more can it take, strains on the economy, before we see some sort of bigger downturn, and some comments on the currency swap that they did. No. 2, South Africa's central bank Governor has warned that the current account deficit may rise and that could weaken the rand and also fuel further interest rate increases. What is the IMF's view on that one?
Mr. Tiwari: You are right, there was a report this morning that the inflation rate is 1,024. Your question of what is the upper bound, there is no upper bound to inflation rates, unfortunately. It depends on the stance of policies. For Zimbabwe, the country is in a difficult situation. It has faced 3, 4, 5, 6 years of continuous output decline, a rise prices at these rates over several years, increase in poverty, a decrease in public services, increasing HIV/AIDS rates. It is a tragic situation, frankly, and prospects are grim; they are not bright. The newspaper reports of a financing package that the authorities have received in the last few days. While financing will be helpful to Zimbabwe, fundamental changes in economic policies are needed. I think I would like to note that there is substantial goodwill on the part of the international community to help Zimbabwe, but the first step has to be taken by the authorities.
Mr. Bio-Tchane: Let me respond to your question on South Africa. We obviously share the comment made by the Governor Tito Mboweni, who obviously was drawing attention on the widening trade deficit and current account deficit, and, of course, the policy stance of his bank. Obviously, the measures they have taken and the measures that they are anticipating are welcome, and we support that stance.
Question: I wondered if you could make a few comments about trade barriers in the region, have there been any signs that governments are willing or able to bring them down, and what is the impact of high trade barriers between African nations.
Mr. Bio-Tchane: Well, you will see, I think, in not the previous report but the report we had before that that question has been discussed in the regional outlook. Obviously, our view is that the tariff barriers and the nontariff barriers are too high in Africa and obviously this has to be addressed. It has been acknowledged by the African authorities themselves and now we need to move to implementing the measures agreed by the authorities themselves, particularly in disbanding some of these nontrade barriers. The trade arrangements also are too many, it has been recognized, and some of them need to be disbanded as recognized by the authorities themselves. We expect and we are calling them to address and implement the measures that have been approved and accepted by all the member countries.
Question: Two questions. The first one, you have taken into account a lot about the oil price. Recently, the Doha Round of WTO negotiations has sort of collapsed. I am not seeing you taking this into account, what impact it will have on Africa's economic outlook, together with the ongoing negotiations of Economic Partnership Agreements that are supposed to come into effect in the next one year. Secondly, you talked about the rise of oil price concurrently with the rise in commodity prices. Yesterday, your colleague told us that most countries that are cushioned against this steep price in oil prices are ones that are exporting other minerals whose prices have gone up. I am not sure if exporters of agricultural commodities, you mentioned cotton, there are others like tea and coffee, if they are also in the same line.
Ms. Christensen: First, in terms of the Doha Round, what we have taken into account in our projections is the current trading system, not changes and not prospective collapse in negotiations. I think what our general view is that, despite the stalling of the negotiations, countries would benefit from pursuing some liberalization of their trade regimes. Now, in terms of the commodity prices, obviously the situation varies for each country and it is not possible to generalize, but we have the oil exporters on one side. Among the oil importers, some of them are mineral-exporting countries, say copper, gold, other minerals, and have benefited from very high increases in those commodity prices. Other countries have not and the net result you can see in the terms of trade for the countries. If you go to one of the background tables in our report, we show that country by country projections for the terms of trade. If you look at the oil-importing countries as a whole, for this year there is actually a terms of trade improvement by 2 percent. So, on average-but that is an average-there is an improvement taking place, but certain countries have not experienced those gains, that is correct.
Mr. Bio-Tchane: Let me just add that, in general, it is also fair to say that, despite the high oil price increase, most of the African countries, whether they are oil importers or oil exporters, have really well resisted. This is really the best news we can get from the recent policies in African countries that, whether they are oil importers or oil exporters, their policies have helped them cushion the impact of oil prices.
Question: Two questions. One, to continue on the question of commodity prices, that potentially for minerals we are now seeing some softening. Of course, if the Chinese and others loosen their demand and their stockpiling at the moment, we could see a much faster slowdown in that. Again, also, in soft commodities, there are issues even apart from cotton. Do you have a rather more worst case scenario to what could actually happen if there is a much more accelerated slowing down of commodities, nonoil prices, and, if I may, I would like to ask a second question. On the question of the Chinese impact, and particularly the Chinese loans where we know the Fund has naturally taken positions on this, how do you see the question of Chinese loans at the moment? Are they an expensive addition that African countries should not be taking on as the Americans have said, and more generally, how do you see them fitting into the general financing mix in the continent? Are you actually concerned about this? Is this an issue for you?
Ms. Christensen: First, on the trade issue, the issue is, if oil prices stay high, say, would the other mineral prices, would they soften, so actually your terms of trade would develop over time. That is a topic that was extensively discussed in the World Economic Outlook which was released the other day. In the World Economic Outlook it was argued that the supply response for the other metals could be faster than the supply response for oil, meaning that there is a risk that this terms of trade could develop. So, to respond to your question, we have not incorporated any particular scenario in this outlook on that possibility, but it is a risk. In particular, it is a risk that policymakers should be aware of, because it means they should not spend the gain; I mean, they should not essentially increase their public expenditures because of the higher metal prices, but essentially they should save in case prices come down. So, it has policy implications that are important. It is difficult to project how fast these prices would come down if they do, but there is a risk, and you are quite right on that.
Mr. Bio-Tchane: I think on financing, let me say that what we are concerned about is the nature of the financing, the nature of the loans, the nature of the grants. Most of these countries have either just completed the HIPC exercise or the MDRI exercise and have reached a level of debt quite sustainable and, therefore, are in a position to take on new loans. Of course, we are concerned that some of these new loans could get them in a very difficult situation in the next few years. So, the question is not, as far as we are concerned, on a country-specific loan, but the nature of the loans. Obviously, we are calling for an additional and scale-up of resources for the African countries to help them reach the MDGs and, therefore, financing is needed, but we need to make sure that this financing is compatible with debt sustainability.
Question: First, by next year, West African countries are going to be accelerating these questions on the monetary union, I mean the subregion, but given the fact that it is varied, the inflation rate in that subregion, at the same time varied exchange rate at the region, how possible do you think this would work or is there hope in that discussion at all? Secondly, by next year, also, Nigeria is going to an election. There is constant pressure at the moment for the government to spend more on infrastructure, given the fact that we accumulated a quite a lot of funds from the excess crude. What would be your advice, given the fact that we know what will happen if more funds are pumped into the economy? In the WEO, it said that Nigeria, as a matter of fact, must keep inflation at a single digit. Do you think this is possible?
Mr. Bio-Tchane: Well, on your first question on the West African Monetary Union, this an issue that we have been discussing for sometime with the West African authorities. What we have said in the past is still the same today that the monetary union, a single monetary currency should be looked at in the framework of a convergence policy. Therefore, the fiscal and monetary policies of each of the countries should be looked at and evaluated before moving to the next stage. Obviously, we were happy last year when the decision was made by the authorities to move it to 2009, I think, before moving to the first stage of the reform. Therefore, we will continue to watch the policies and advice on the convergence policies before moving to that step.
Second, as far as the Nigerian policies are concerned, I think that for the last few years we have seen quite prudent fiscal and monetary policies. Of course, we hope that this will continue despite the pressure during the electoral periods. We will continue to advance the same policies. And given the people who are there, we still have the same Governor and the same government, I expect the same policies to continue.
Question:(THROUGH INTERPRETER) I will ask a question in French. I will ask my question to you directly, sir, because in your opening words you talked about the increases that we have had in oil products in sub-Saharan Africa. We had a 150 percent increase between 2003 and 2006 here but we still see that in most of the countries concerned, infrastructures are not being built; there are not roads, there aren't schools, there aren't hospitals. You also said that it was very important to take measures so as to reduce vulnerabilities of the poorest parts of the population. Concretely, what do you propose to do?
Mr. Bio-Tchane: (THROUGH INTERPRETER) What I can tell you, since we are talking about Congo, since 2003 we have seen that the situation has improved. We have also seen that growth has come back. We further see that the general economic situation is improving and that, over the same period, new infrastructure has begun to be created. So, I think that we are dealing here with a question of the rate at which growth is continuing and policy is being implemented. We cannot rebuild infrastructures that have been destroyed over years and years of civil war in a single day, and I think that we need to be patient. Obviously, infrastructure does have to be recreated or renewed and that is precisely what we are trying to support through the economic program and financial program with the IMF with its facility which is presently open. You know that Congo has reached decision point and I think that it is in that framework that we are going to have to go on working.
Question: (THROUGH INTERPRETER) I am sorry, if I can just follow on to that. Congo has been at decision point since basically five or six years and completion point will basically depend precisely on that, on the implementation of measures that have been dictated by the Bank and by the Fund. Is that going properly now between Congo and yourselves?
Mr. Bio-Tchane: (THROUGH INTERPRETER) We have a program which is being executed, being applied and this is going fairly well for the time being. You know that this is a continual challenge, an ongoing challenge. Everyone concerned, in this case in Congo in particular, has to implement certain measures so as to reach completion point and I hope that that will happen on schedule.
Question: (THROUGH INTERPRETER) You said that most countries have seen an increase, which is a good thing. I am wondering how long it will be possible for them to go on resisting these increases, especially given that you see all over the place that there is a very real impact on the poorest sectors of the population, as you said yourself earlier. Your colleague said that we should not increase public spending. The question that we are asking ourselves is, if we are not going to increase public spending, that means that there will be less schools built, there will be less civil servants, there will be less increases in wages because that is what unions want. There is demonstrating everyday in our streets because daily life is becoming ever more expensive. Have we not gotten ourselves into a vicious circle at some point? How can we find a way out for countries that are as poor as Burkina Faso, Mali or Niger, especially given that we see these are countries that have succeeded in their reforms and are quoted as examples by the IMF, but we do not see any return of private investment, for instance, to compensate that as such because there are very limited countries that represent enclaves, if you will.
Mr. Bio Tchane: (THROUGH INTERPRETER) There are two different things here. First of all, let me correct a certain misunderstanding that seems to have arisen concerning my colleague's remarks. It was said earlier that our advice to countries that export mineral resources or oil and whose earnings or supplementary earnings have not been entirely spent, that was what she was referring to. We were not talking about no increase in expenditure. On the contrary, so as to meet the Millennium Development Goals, we will have to spend more clearly. That is what most governments are already doing, with our support.
Secondly, since you mentioned investment and development in the private sector, because that is where more resources need to be generated and where wealth needs to be created, that is exactly where we can fight against poverty. We need to create a propitious environment for this, and that is exactly what governments are trying to do. Governments such as Burkina, Mali or Niger, the ones that you mentioned, need to put their nose to the grindstone precisely here. We need to see companies, either domestic or foreign, attracted through a propitious environment and the different costs of inputs are such that we can have a situation which will be propitious to growth. You will see this in the report which has been published by the World Bank on the general business climate in Africa. This is the first time that countries such as Burkina have been able to move up in the (league?) simply because they were able to take measures to encourage a favorable business climate domestically and that is exactly the sort of measures that need to be pursued, especially in Africa.
Question: (THROUGH INTERPRETER) I have two questions and one observation. Let me begin with the observation. To advance back on what was said on Burkina Faso just now, you talked about the economic outlook, which was a favorable one in your words, but I think that the challenge for the Fund is to explain to African public opinion in different countries why globally favorable outlooks, even if you put that in relative terms, is not accompanied by an improvement in the standard of living of the population as a whole. In fact, just the opposite happens; we see basic goods become ever more expensive. My first question is the following. I found it somewhat surprising that you did not analyze at this point in time the different effects on the economies of various countries, the 20 or so countries which have benefited from debt reduction programs after the Gleneagles summit, or in the wake of the most heavily indebted countries program. Given that analysis, are you thinking it is too early to do this? Is it because these measures have revealed themselves to be too limited or too partial? This was a criticism that was already leveled by civil society organizations at that time and even by some economists.
My second and last question does not concern entirely the African economic situation, but I wonder if there is a concerted African position on the reform of the Fund that we heard described yesterday by the Director-General.
Mr. Bio-Tchane: (THROUGH INTERPRETER) Well, very rapidly on your comment concerning standards of living, I would perhaps allow myself a comment of a personal nature as well. You cannot change standards of living from one day to the next. Quality of life exists in the country where you can see quality of life improve over time, but over a rather long period of economic growth at much higher rates that we see today in Africa and over a much longer period. That is why, I think, that Africans need to be patient and go on working. Over a longer period, sustained growth rates in Africa will lead to higher purchasing power, better quality of life. It is quite obvious that we are already beginning to see in certain sectors a certain amount of improvement, but this improvement is quite fragile for the time being and it is not sufficiently durable or sustainable. We will need to go on working.
In terms of debt reduction problems, the (?) does not deal with this for two different reasons. First of all, concerning the highly indebted poor countries program which has been in place for some time, a study was already carried out which shows that resources that had been freed up by this initiative did allow substantial increases in public spending of the countries concerned. In Cameroon, you can see that for yourself; in Burkina Faso, Mali, and other countries you will also be able to see that social spending has increased in those countries given the freeing up of resources elsewhere through the Highly Indebted Poor Countries program. In terms of a less debt cancellation program after Gleneagles, it is obvious that it is too early to say. Resources were only freed up at the beginning of this year and we will need a certain amount of time to pass to see what the real impact has been. What we are saying now basically is what volume of resources will be freed up by this initiative. If you look at the IMF, which is quite considerable already; we have already been dealing with more than $5 billion and those amounts, if they are earmarked for infrastructure spending or social spending, will obviously create more wealth.
Concerning the reform of the Fund and Africa, you will see that the two main pillars of this reform are, firstly, to increase the quotas and give a more important role to emerging economies who will have more voting power in the IMF and generally be able to have their voices heard more loudly, and secondly, for the first time in the IMF's history-and we need to recognize this and this is in Africa's own interest-that basic votes will also increase and that they will be protected in the future. This is also a second pillar which is very important and which is in the interest of African countries and, in general, of poor countries.
Question: On this issue of the oil revenue windfall, you say a lot of it is unspent at this point. Do we have an idea of where it is being invested? Is it being invested anywhere in Africa or is it in European or America markets? If they are able to accelerate the expenditures you suggest on infrastructure, what would be the wealth effect on neighboring countries and on Africa as a whole if the oil exporters start to invest that money.
Mr. Tiwari, you said on Zimbabwe that it is up to Zimbabwe to take the first step. Are you talking about purely political? Is there something economic that they can do, some kind of economic first step that they can take? Perhaps you could just expand on that a little bit. Then very briefly, your GDP forecast is slightly lower than the World Economic Outlook. Perhaps you could just explain that.
Mr. Bio-Tchane: Just on the last question on GDP, we have exactly the same numbers as the WEO. It is just a question of coverage. The WEO covers not just the Sub-Saharan African countries that we are covering; we cover in our report 44 Sub-Saharan African countries. The WEO will add to those countries Sudan, Djibouti, and Mauritania. So, that is the difference; the difference is just on coverage. We have exactly the same data. On the windfall, let me just add a couple of points. Where it is spent, I think Siddharth will take that question. Let me say that, for instance, Nigeria has wisely used their windfall to pay back its debt, and that was good policy. Further, you see some of the other countries, like Angola, following on that foot step.
Mr. Tiwari: I was referring strictly to things which are under the authorities' control, and let me go down a few of them. Fiscal policy. Fiscal policy in Zimbabwe is being executed right now both in the Ministry of Finance and in the central bank. Quasi-fiscal deficits in the central bank are fairly large and there is a need to reduce the size of these deficits to levels that are conducive to development. Let me put it this way. Twenty percent deficits are better than 75 percent deficits. No one would argue about it. Two hundred percent inflation rate is better than 1,000 percent. No one would argue about it. The first steps have to be toward a policy framework that delivers these outcomes. These are not single-digit inflation numbers. These are not deficit levels that are part of any convergence criteria. We are looking for a set of policy measures that go in the right direction, and structural reforms are an important part of that. Exchange market reforms are an important part of that. Frankly, in the end, improvement in the business climate, the rule of law is an important part of that. You can do all of the above and if you do not convince the private sector it is not going to work.
Question: Is it true that the IMF has projected that metal prices could fall by as much as 45 percent in the short term and, if so, what would likely be the impact on metal-exporting commodities? If that is not the case, what are your projections for metal prices in the short term?
Ms. Christensen: Essentially, whatever is the prospect for metal prices is included in the World Economic Outlook. We use the projections for metal prices that are included in the general publication on the prospects for oil countries. As I mentioned before, we have not made any specific scenarios concerning any crash in metal prices going ahead, in part because also it is likely to come beyond the projection period included in this report. I mean, clearly there is a risk that policymakers should be aware of.
Question: Mr. Bio-Tchane, you made reference to the fact that we have a plethora of what you would call trade arrangements in the whole African continent, and also this aspect of a lot of tariff and nontariff barriers. One, of course, has in mind the setups like SADC, the South African Customs Union, Common Market for Eastern and Southern Africa, East Africa Community. I wanted to find out from you to what extent this kind of too many trade arrangements are a factor in the inefficiency as far as the running of the continent's economies are concerned?
Mr. Bio-Tchane: As I said earlier, this has been well-documented and is well accepted by the African authorities themselves. Each African country today is part of 6-7 trade arrangements in the continent. This is too many and obviously too much. This has been recognized by the EU, the African Union authorities. There is actually a program of rationalization that has been approved by the Heads of State themselves. Therefore, what we are advising is to move in implementing those agreements approved and accepted by the African authorities. Obviously, if you take each of the countries, rationalizing will help not only the country, but also trade among the African countries. You mentioned the arrangement in the Southern African region, but you should take the West African subregion, you will see exactly the same thing between the WAMU, the ECOWAS, and other smaller arrangements. Therefore, we really need to move swiftly to implement the agreement approved by the Heads of State themselves.
Question: I have a question. What I have observed is that most African countries have dollarized their economies and most countries are quoting, wherever you go, you even go to some shops now, it is quoted in dollars. How can African countries move away from the dollarization of their economies?
Mr. Bio-Tchane:Well, I am surprised to hear that question from someone from Tanzania. As a matter of fact, what I have witnessed in a country like Tanzania is that people are using more and more of their own currency, and this is happening in more than Tanzania. As a matter of fact, with the fall in inflation, with the stabilization of the local currencies in Africa, we have seen more and more countries moving away from dollarization. So, I think we are not having the same reading of the economies in Africa.
Ms. Bhatt: Thank you very much for coming.