Transcript of a Press Briefing on the IMF's Economic Outlook for Sub-Saharan AfricaWith Antoinette Sayeh, Director of the IMF’s African Department, Mark Plant, Deputy Director, Sharmini Coorey, Deputy Director, and Abebe Selassie, Chief of the African Department's Regional Studies Division
April 23, 2010, Washington, DC
|Webcast of the press briefing|
MR. DIENG: Good afternoon and welcome to the Press Briefing for the Regional Economic Outlook for Sub-Saharan Africa. Joining us today, Antoinette Sayeh, who is the Director of the African Department at the IMF; Mr. Mark Plant, Deputy Director, Sharmini Coorey, also Deputy Director and Abebe Selassie, who is heading the Regional Studies Division in the African Department. Antoinette will start with some brief opening remarks, and then we'll open it up to questions. So, I'll turn over the floor to Antoinette.
MS. SAYEH: Thanks very much. Good afternoon, everyone. So, let me make some remarks about recent economic developments in Sub-Saharan Africa and about the main policy issues we expect countries there to be addressing this year and beyond. You will, of course, find further details in our latest edition of the Regional Economic Outlook for Sub-Saharan Africa, the 14th in the series. That will be available after the press conference.
Our main point this afternoon is just to underscore the fact that Sub-Saharan Africa has not been immune from the global downturn, as we've been saying all along, but that it has in fact proven to be significantly more resilient than in the case of previous downturns. And so, let me underscore some of the positive developments in the Region in the course of the last several months.
The first point to make is that the slowdown looks to be mercifully brief. Output we now project to expand by some 4.75 percent in 2010, compared to an estimated 2 percent in 2009. And provided that the global economy continues to improve, we think that growth in the Region should accelerate even further to about 5.75 percent in 2011. So, this is a much better picture of course than we had painted a year ago. Our growth estimates for 2009 and the projections for 2010 have been revised upwards, .5 percent to 1 percent, largely reflecting the much faster recovery in global economic activity than we had expected a year ago. And with the recovery now well under way, we think the risks--downside risks have receded somewhat.
The second observation I would make is that middle-income and oil-exporting Sub-Saharan African countries faired much worse, were significantly affected by the downturn, and somewhat surprisingly to some, many of the Region's low-income countries appear to have been less affected, escaped fairly lightly in terms of the impact of the crisis. Of course, middle-income and oil-producing companies saw their--the demand for their exports shrink significantly in the major advance in emerging market economies.
And low-income countries, by contrast, and those in particular with less exposure to volatile commodities and less integration in the global financial markets, of course, were able then to sustain their growth. In fact, several of the fragile countries were able to accelerate output in 2009, benefitting from continuing reconstruction spending.
Overall for the Region, for the 29 low-income countries in the Region which contain about two-thirds of the Region's 750 million people, average growth rates fell to--only to 4.5 percent in 2009, only some 2 percentage points below where they had been in the boom years of 2004 to 2008, so, a much more muted impact on low-income countries.
The third point I would make is that the recovery is certainly well underway across the Region. Part of the explanation lies in the quick turnaround, as I was saying before, in the global demand, growth, and in world commodity markets. And these developments have helped export growth to bounce back in middle-income countries, restore the revenues of oil produces. So, we certainly expect that Sub-Saharan Africa will now continue to find its way out of the recession at about the same pace as other countries, unlike earlier experiences. What explains the Regions resilience? We think it owes--It's really a reflection of the much better health of Sub-Saharan African economies going into the recession, before the recession, much stronger policy frameworks, as well, that were in place going into the crisis.
In addition to that, of course, many countries were able to use the fiscal space that they had created to implement countercyclical fiscal policy and also countercyclical monetary policy in some countries, helping to mitigate the impact of the slowdown of their economies.
Almost three-quarters of Sub-Saharan African countries, in fact, were able to increase government spending to buttress economic activity. This is a first in many ways for the region.
In addition, health and education spending increased in real terms, also, in 20 of the 29 low-income countries in the Region in 2009, again, very positive development. Government capital spending also looks to have held up in the course of 2009, and increased in real terms in more than half of the countries in the Region. As I said before, there was some action to reduce policy interest rates in a number of countries, and a much more business-friendly environment helped to sustain investment in capital inflows in the course of 2009.
But all of this is not meant by any means to downplay the negative impact of the crisis on the Region. It is still the case that progress in poverty reduction of course has slowed down as a result of the crisis. Our colleagues across the street at the World Bank suggest that some seven million people in Sub-Saharan Africa may have been prevented by the crisis from rising above poverty, above the poverty line in 2009. In addition to that, the slowdown has imposed some lasting costs on the Region, and when you look at middle-income countries in particular, the job losses there have been very significant. In South Africa alone, some 900,000 jobs lost.
So, what, then, are the big policy issues for the region, going forward? We see five main ones, with economic growth reverting close to pre-crisis levels by 2011.
First, we think macroeconomic policies need to be refocused from the short-term focus they've had on stabilization this past year to making more medium-term plans and pursuing more medium-term objectives consistent with macroeconomic stability.
Secondly, we think that it's an opportune time to start rebuilding policy buffers to enable Sub-Saharan Africa in the event of a subsequent crisis, of course, to repeat the experience that we saw in 2009 where stronger fiscal positions, more adequate foreign exchange, allowed countries to pursue much-needed countercyclical policies and to deal with the unanticipated shock of the global crisis.
The third area would be that the financial systems need to be strengthened. We are concerned about recent developments in a number of countries, recent developments highlighting in particular the risk that can emanate from poorly supervised financial sectors; so, more attention to financial sector.
Fourthly, attracting private capital flows will continue to present major policy challenges for one-third of the countries in the Region that remain on the margins of international capital markets.
For those countries, the same reforms that are needed to raise productive potential are also likely to help attract private inflows on a sustained basis, and this means, for example, that promoting trade and financial sector development, encouraging domestic savings and investment, raising standards of governance and strengthening institutions.
And finally, for the Region's more advanced economies, macroeconomic policy will now need to take into account the impact of renewed inflows of foreign capital so that overheating, unwarranted appreciation in asset price booms can be avoided. And let me now turn to say a few words in conclusion about what the Fund has been doing to support efforts across the Region.
Some 30 out of the 44 countries in Sub-Saharan Africa have had program arrangements with the Fund in the course of the past year. We were able to expand our lending five-fold in the course of the--of 2009 to some $5 billion, of which about 3.6 billion in concessional--highly concessional financing. We were able to provide those resources quicker, more flexibly, and in larger amounts to individual countries than in the past, and with fewer conditions.
In addition, of course, there was the SDR allocations in August and September of 2009 that made available to Sub-Saharan Africa $12 billion of reserve assets.
And the Fund, of course, continued to provide much-needed policy advice in the course of the crisis. In the course of the programs, it supported also more expansionary macroeconomic policies across the subregion. Through our policy advice, our training, and our technical assistance, the Fund also continued to provide a significant degree of support for the Region.
So, let me stop there and we can take any questions that you may have.
QUESTION: First, you recall that we just had a new President some two-three months ago, and he has taken some sweeping steps. Are you in support of this? What is the Fund's view on this? Two, Nigeria also intends to borrow almost $1 billion externally. What is your view about this? Thank you.
MS. SAYEH: We have indeed been encouraged by the movement on some aspects of the reform challenges in Nigeria since the Acting President came into office. We've seen movements on the challenges around the financial sector restructuring and resolution, and, in particular, recent progress on the establishment of an asset management company that will help to recover and restructure the banking system; so, encouraged on that account.
Some progress also in terms of getting the petroleum import bill moving through Parliament, also very encouraging. Those are two big areas where the Fund has been providing technical assistance to Nigeria, significant amounts of technical assistance to help with the response to the banking sector and to formulate the revised sets of policies that are reflected in the draft petroleum import bill. So, we very much expect to be working to continue to provide advice and support to the government in the course of the months ahead, and hope that it allows Nigeria to continue to make progress on the huge challenges that it continues to face.
Nigeria, of course, has had a significant amount of reserves of its own to help it respond to the crisis. And in the process of responding, has used significant amounts of what was in the excess crude account, and we think, of course, that it was a timely response to the crisis. That's why you build reserves, to have the ability to then tap into them when you need to--when there are unforeseen circumstances.
But of course, going forward, Nigeria needs to continue to have clear policies around the use of the excess crude oil account that really helps it to pursue more countercyclical policies.
I don't have much information on this specific $1 billion borrowing you are referring to, but will be happy to comment on it when we have the additional details on that.
QUESTION: Kenya will be going on referendum on--in October, in three months' time from now, and there is an argument or a thought for that matter that this constitution is going to play a critical role and dealing with corruption in the country. The second question is on the reforms that are taking place in the financial sector. We have seen that the central bank is implementing a number of policies, like the cutting down of CBR, the coming up--the launch of a credit reference bureau, but the same thing is not being reflected on the ground. The rates--the interest rates by commercial banks are still high, and I'm thinking maybe the Fund could comment on such a thing. What's happening?
Kenya's economy is largely dependent on agriculture, and for that matter, we depend so much on agriculture, but on rain-fed agriculture for that matter. But apparently, the country has been facing a lot of drought, we don't have irrigation schemes. I'm curious to know if the Fund is doing anything as far as construction of dams. Is there or not?
MS. SAYEH: We've been very encouraged by recent progress on the proposed constitution. We've seen a degree of consensus between members of the coalition government that have now brought the draft constitution through parliament and, as you say, with plans for a referendum in a few months, sometime in the summer. And that will herald significant progress and critical step forward as Kenya works towards resolving its political problems and preparing the way for elections ultimately in 2012. So, we think that's encouraging progress indeed. I will turn to my colleague, one of my colleagues, Mark Plant, who can say a bit more about the remaining questions you asked. Just to clarify before doing that, before doing that, of course the Fund is not lending directly--not lending for investments in agriculture or anything else. We--our lending goes to supplement the reserves of the central bank. And in the course of 2009, of course, we have had a program with Kenya to help it face--respond to the balance of payments needs coming out of the crisis, but that support has not been for specific investments.
MR. PLANT: On your question on the financial sector, first of all, we'd say that proactive measures by the central bank have helped mitigate the impact of the crisis on the banks in Kenya. In 2009, we did an update of the financial--what we call the Financial Sector Assessment Program. We looked again at the Kenyan financial sector and found that largely the banking system remains liquid and well capitalized.
Nonetheless, more--some strengthening of bank capabilities on supervision and some strengthening of financial regulations is required, and so we're generally supportive of the direction that they're headed, and we think in due course that that will have an impact on the banking system, both in Kenya and the Region as a whole.
QUESTION: In the SADC Region, SMEs make up 90 percent of commerce, but most of them are going down because they don't have access to finance, and the lending rates in most of the countries in the SADC are so high for them. So, I was wondering if the IMF is helping countries in that region to come up with policies and programs that will address that.
MS. SAYEH: Yes, indeed. The Fund is providing to a number of countries in the SADC Region. Technical assistance on the financial sector and of course on the links between fiscal developments in the financial sector through the interest rates. I know that we--we're of course aware of the big concerns across the Region in terms of the stickiness of interest rates and the fact that they continue to be relatively high in some places. And of course, the focus on helping countries deal with their fiscal challenges is potentially helpful in that regard in terms of reducing the borrowing requirements for governments and therefore leaving, of course, more room there for the financial sector to make credit available to private companies. So, yes, indeed, Fund technical assistance is providing advice on these--some of them--longer-term issues also in terms of access to financial sector facilities in various countries, yes. I don't know if any of my colleagues would like to add on the financial sector.
MS. COOREY: Yes, one thing to add is that we also give technical assistance on the financial sector and certainly it's going to be important to have well supervised systems so that the risk premia in the system go down and there is greater access. So, a strong financial system is also important to bring interest rates down, the margins that banks charge, and we have Financial Sector Assessment Program and also technical assistance in that area.
MR. DIENG: If you don't have any further questions, we'll bring it to an end, and thank you very much for your attendance. We'll post the transcript and report shortly in the IMF website. Thank you, again.