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World Economic and Financial Surveys

Regional Economic Outlook:
Sub-Saharan Africa

Resilience and Risks

October 2010

The October 2010 Regional Economic Outlook features: (i) an overview of economic developments and prospects in sub-Saharan Africa; (ii) an analytical assessment of how monetary policy changes are transmitted through the region’s economies; and (iii) a study of why growth rates in the West African Economic and Monetary Union (WAEMU) have lagged behind other parts of sub-Saharan Africa. The overview highlights the broad-based economic recovery that is now under way in sub-Saharan Africa and projects growth of 5 percent in 2010 and 5˝ percent in 2011. It explores the resilience of most economies in the region to the global financial crises of 2007-09 and explains why sound economic policy implementation and a growing orientation of trade toward Emerging Asia are expected to continue to underpin growth. The second chapter provides evidence suggesting that monetary policy may have more power to influence monetary conditions than previously assumed. Main messages from the WAEMU study are the importance of strong policy environments and political stability for achieving sustained growth; and of robust fiscal frameworks for directing resources towards priority spending needs.

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Contents

Abbreviations
Preface
Main Findings
 
1. Resilience and Risks
  Introduction
  What Are the Prospects for a Sustained Recovery in Sub-Saharan Africa?
  What Explains Sub-Saharan Africa’s Resilience?
  What Is the Legacy of the Global Financial Crisis and What Are the Policy Priorities Now?
 
2. Monetary Policy Effectiveness in Sub-Saharan Africa
  Introduction and Summary
  Recent Shocks and the Policy Response
  How Did Monetary Policy Affect Macroeconomic Performance?
  Looking Forward
 
3. The Quest for Higher Growth in the West African Economic and Monetary Union (WAEMU) and Implications for Fiscal Policy
  How Does Growth in the WAEMU Compare with Other Sub-Saharan African Countries?
  How Can Fiscal Policy Support the Quest for Higher Growth in the WAEMU?
 
Statistical Appendix
References
Publications of the IMF African Department, 2009–10
 
Boxes
1.1. What Are the Prospects and Challenges in the Five Largest Economies?
1.2. How Can the Region’s Five Weakest Growth Performers Sustain Recovery?
1.3. National Elections and Economic Activity: Are There Political Business Cycles in Sub-Saharan Africa?
2.1. Classification of Exchange Rate Regimes
2.2. Empirical Evidence on the Credit and Interest Rate Channels in Sub-Saharan Africa
2.3. A Model-Based Analysis of Monetary Policy in Low-Income Countries during the Crisis: The Case of Zambia
2.4. Financial Development and Other Factors Affecting Monetary Transmission
3.1. Benchmarking Good Performance
3.2. Defining Growth Accelerations and Decelerations
3.3. Improving Nonprice Competitiveness: Lessons from Mauritius
3.4. Overcoming Infrastructure Bottlenecks in the WAEMU
 
Tables
1.1. Share of China in Total Merchandise Trade
2.1. Determinants of Bilateral U.S. Dollar Exchange Rate Change
2.2. Change in Real Private Credit
3.1. Real GDP per Capita Growth, 1980–2009
3.2. Frequency of Growth Acceleration and Deceleration, 1980–2009
3.3. External Environment, 1980–2009
3.4. Macroeconomic Policies, 1980–2009
3.5. Growth Accounting, 1980–2007
3.6. Trade and Competitiveness, 1980–2009
3.7. Institutional Quality, 1996–2008
3.8. Other Structural Indicators, 1980–2009
3.9. Strengths and Weaknesses of Infrastructure Financing Options
 
Figures
1.1. Sub-Saharan Africa: Macroeconomic Indicators
1.2. Sub-Saharan Africa: Distribution of GDP Growth in 2009 and 2010
1.3. Sub-Saharan Africa: Nominal Effective Exchange Rate and Inflation
1.4. Sub-Saharan Africa: Overall Fiscal Balance
1.5. Sub-Saharan Africa: Number of Countries with Negative Growth
1.6. International Comparisons: Real GDP Growth
1.7. Sub-Saharan Africa: Private Financing Flows
1.8. Sub-Saharan Africa: Contributions to Real GDP Growth, 2003–11
1.9. The Increasing Role of Developing Asia, 2005–10
1.10. Sub-Saharan Africa: After the Global Recession, 2010 versus 2004–08
1.11. Sub-Saharan Africa: GDP Growth and Fiscal Balance
1.12. Sub-Saharan Africa: Exchange Market Pressure Index, 1990–2010
1.13. Difference in Real Effective Exchange Rate Index between 2005 and 2009
2.1. World Commodity Prices
2.2. World Growth
2.3. Revisions to Inflation and Growth Forecasts
2.4. Frequency of Changes in Inflation
2.5. Frequency of Changes in Policy Rates
2.6. Sub-Saharan Africa: Policy Rates
2.7. Sub-Saharan Africa: Reserve Money Growth
2.8. VAR Model of Monetary Transmission
2.9. Sub-Saharan Africa and Advanced Economies: Inflation and Base Money
2.10. Sub-Saharan Africa: Nominal and Real Effective Exchange Rates
2.11. Sub-Saharan Africa: Reserves and Exchange Rates Movements
2.12. Sub-Saharan Africa: Excess Reserves and Reserves Requirements
2.13. Sub-Saharan Africa: Monetary Indicators
2.14. NPLs, Excess Reserves, and Credit Growth
3.1. Growth and Income Level, 1980–2009
3.2. Initial Income and Real GDP per Capita Growth, 1995–2009
3.3. FDI Flows, 1995–2009
3.4. Trade and Competitiveness Indicators, 1995–2010.
3.5. Real Effective Exchange Rate Level, 1995–2009
3.6. Composite Indicators of Structural Competitiveness
3.7. Real GDP per Capita Growth and Political Risk Rating, 1995–2009
3.8. Selected Infrastructure Indicators, 1995–2009
3.9. Government Debt, 2007–15
3.10. Fiscal Indicators, 1995–2010
3.11. Composition of Government Spending, 1995–2010
3.12. Growth and Budget Institutions, 2010
3.13. Low-Income Countries: Growth and Fiscal Risks, 1997–2007