Time for a Policy Reset
After an extended period of strong economic growth, many sub-Saharan African countries have been hit by a multiple of shocks—the sharp decline in commodity prices, tighter financing conditions, and a severe drought in southern and eastern Africa. Growth fell in 2015 to its lowest level in some 15 years and is expected to slow further to 3 percent in 2016. The growth performance, however, differs across countries, with most oil importers faring reasonably well. The region’s medium-term prospects remain favorable but many countries urgently need to reset their policies to reinvigorate growth and realize this potential. To this end, countries should adjust fiscal policies, and for those outside monetary unions, exchange rate flexibility, as part of a wider policy package, should also generally be part of the first line of defense. In the medium term, policies targeted at diversification and financial sector development could also strengthen resilience and boost growth.
Chapter 1: Time for a Policy Reset
- Economic activity in sub-Saharan Africa in 2015
slumped to its lowest level in some 15 years.
Output expanded by 3.4 percent, just a little
above population growth, down from 5 percent
in 2014 and the still higher growth rates that were
customary in recent years. The main reason for the
slowdown is the sharp decline in commodity prices,
which has placed a number of the region’s larger
countries under severe strain, with a pronounced
impact on the regionwide aggregate.
Chapter 2: Weathering the Commodity Price Slump
The dependence on natural resource exports has
made nearly half of sub-Saharan African countries
vulnerable, one way or another, to the ongoing
decline in commodity prices. But how much and
how deeply countries will be affected remains
an open debate.
Chapter 3: Financial Development and Sustainable Growth
- Financial development is important for promoting
strong and stable economic growth in sub-Saharan
Africa. It entails the wider use of existing financial
instruments as well as the creation and adoption of
new ones for intermediating funds and managing
risk (Chami, Fullenkamp, and Sharma 2010).
With external demand and financing conditions
significantly worsening, and a much less favorable
growth outlook for sub-Saharan Africa, identifying
untapped or underutilized sources of growth and
reducing its volatility have become even more
urgent. It is well established in both the theoretical
and empirical literature that financial development
is generally good for growth. Although debates have
revolved around whether financial development is
an engine for growth or just a lubricant, whatever
factor can significantly ameliorate growth prospects
for the region is worth examining in detail.
- Unless otherwise noted, data and projections presented
in this Regional Economic Outlook are IMF
staff estimates as of 25 March, 2016, consistent
with the projections underlying the April 2016
World Economic Outlook. The data and projections cover 45 sub-Saharan
African countries in the IMF’s African Department.
Data definitions follow established international
statistical methodologies to the extent possible.
However, in some cases, data limitations limit
comparability across countries.
- List of references.
Publications of the IMF Africa Department, 2009-16
- Books and monographs, departmental papers, policy papers, staff discussion notes, and working papers.