## sreo1018

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### Recovery and Rising Risks — Major Findings and Projections
- Growth and outlook:
  - Growth expected to increase from 2.7 percent in 2017 to 3.1 percent in 2018.
  - Medium-term projection: growth expected to accelerate to about 4 percent on current policies (or plateau at about 2½ percent under an alternate medium-term note; per capita growth ~1.5 percent).
  - Nigeria: expected to grow by 1.9 percent in 2018, up from 0.8 percent in 2017.
  - South Africa: expected growth about 0.8 percent in 2018; medium-term ~1.8 percent under current policies.
- Inflation and monetary conditions:
  - Average inflation in oil-exporting countries expected to fall from 17 percent in 2017 to about 13 percent in 2018.
- External and fiscal balances:
  - Current account balances little changed overall; improvement in oil exporters and deterioration elsewhere.
  - Reserve buffers generally not rebuilt; in half of the countries in the region, reserves remain below levels considered adequate.
  - Average fiscal deficit set to shrink from 4.2 percent of GDP in 2017 to 3.3 percent in 2018.
  - Under medium-term fiscal plans, domestic revenues envisaged to rise by about 2½ percent of GDP in oil-exporting countries and by ½ percent of GDP in other countries.
  - Revenue mobilization gap under current plans estimated at 3–5 percent of GDP on average and is not expected to be closed.
- Debt and balance-sheet risks:
  - Average public debt in 2018 expected to remain around its 2016 level, at about 57 percent of GDP.
  - Share of foreign-currency denominated public debt rose from an average of 23 percent in 2011–13 to 32 percent in 2017.
  - Arrears amount to about 5 percent of GDP on average at end-2017; exceed 20 percent in several countries (Equatorial Guinea, Gabon, The Gambia).
  - State-owned enterprise liabilities have occasionally reached 10 percent of GDP or more (Cabo Verde, Cameroon, Ghana, São Tomé and Príncipe, South Africa).
- Financial sector vulnerabilities:
  - High NPLs in several countries (Angola, Chad, Ghana, Equatorial Guinea, Mozambique) constrain credit to the private sector.
  - Capital shortfalls reported in Ghana, Guinea, Guinea-Bissau, Malawi, Nigeria, Togo.
  - In some countries, attractive returns on government securities have supported bank profitability despite vulnerabilities.
- Downside risks:
  - Global policy uncertainty unusually elevated.
  - Trade tensions could entail a cumulative loss of GDP in sub-Saharan Africa of up to 1½ percent of GDP during 2018–21 under the simulated tariff scenario.
  - Rising interest rates and a continued strong dollar could raise debt service burdens and refinancing costs; large amounts of maturing bonds for frontier markets in 2019–20 and 2024–25 imply substantial refinancing risks.
  - Security risks: UN-OCHA estimates more than 30 million people suffering food insecurity in 2018; internally displaced rose from about 4 million in 2012 to about 11 million in 2017; about 170,000 migrants from sub-Saharan Africa sought asylum in Europe in 2017.

### Recovery and Rising Risks — Key Policy Recommendations
- Fiscal policy and revenue:
  - Implement fiscal strategies to reduce debt vulnerabilities consistent with steady fiscal consolidation; resist easing consolidation during commodity upswings or ahead of elections.
  - Advance revenue mobilization: average revenues are estimated at 3–5 percent of GDP below potential; successful reforms include taxpayer identification numbers, semi-autonomous revenue authorities, the VAT, taxpayer segmentation, base broadening, simplification, and tackling exemptions.
  - Improve expenditure efficiency: address re-emergence of energy subsidies via automatic fuel pricing mechanisms (examples: Ghana and Mozambique) with mitigating measures for the poor; improve public investment efficiency and public financial management to avoid arrears.
- Debt management and market development:
  - Improve debt management frameworks, strengthen capacity for cost-risk analysis, update medium-term debt strategies to address contingent liabilities (Cabo Verde, Ghana, Kenya, Tanzania), and deepen domestic sovereign debt markets (Ghana, Kenya, Namibia, Nigeria, Tanzania).
- Financial sector reforms:
  - Implement comprehensive NPL reduction strategies: accelerate loss recognition, strengthen supervisory recovery focus, reform insolvency and debt enforcement, support judicial efficiency, and consider macroprudential buffers.
  - Recent measures cited: asset quality reviews and higher capital requirements (Angola, Ghana, Mozambique); regulatory updates in CEMAC; WAEMU adoption of prudential rules aligned with Basel II/III.
- Exchange rate and monetary policy:
  - Allow greater exchange rate flexibility where institutional setups permit and balance-sheet vulnerabilities are manageable.
  - Monetary policy recommendations include reducing excess liquidity (especially CEMAC), developing interbank markets and repo transactions, bringing short-term interest rates to positive real territory (Angola, Nigeria), narrowing overnight rate corridors, and strengthening communication and central bank independence.

---

### Capital Flows to Sub-Saharan Africa — Evolution and Composition
- Magnitude and trends:
  - Nonofficial net capital flows: about $4 billion during the 1980s–1990s; $25 billion in 2007; about $60 billion in 2017.
  - Net capital flows to sub-Saharan Africa were historically high at 3 percent of GDP and exceeded those to emerging market economies by about 2 percent of GDP in 2015–17.
  - Liability (nonresident) flows increased from $70 billion in 2007 to $113 billion in 2017.
  - Excluding South Africa, net flows rose from about $1 billion in 2007 to about $44 billion in 2017.
- Stocks and debt composition:
  - Five-fold increase in stock of external liabilities since 2000; stock of external debt has more than doubled since 2000.
  - Short-term debt share of total external debt rose from about 8 percent in early 2000s to 14 percent in recent years.
  - Public sector dominates external debt: public debt ~80 percent of total external debt in 2017 (on average).
- Recipients and composition:
  - Rise in portfolio debt flows largely directed to the public sector; FDI shifted toward manufacturing and services.
  - Among non-resource-intensive countries, Côte d’Ivoire, Ethiopia, Kenya, and Mauritius received more than 40 percent of inflows during 2015–17.
  - International sovereign bond issuances by frontier markets in 2018 reached US$13.8 billion in the first half vs. US$7.6 billion in 2017 full year; Senegal issued US$2.2 billion in March 2018; Angola and Ghana issued US$3 billion and US$2 billion in May 2018; Angola reopened with US$500 million in July.

### Capital Flows — Volatility, Drivers, and Effects by Flow Type
- Volatility and statistics (median standard deviations, percent of GDP; outliers excluded):
  - Net Financial Flows: 1980–2017 = 5.66; 1980–99 = 3.07; 2000–17 = 5.73 (SSA).
  - Net FDI: 2.16; 1.09; 2.36 (SSA).
  - Net portfolio: 0.68; 0.08; 0.59 (SSA).
  - Net other investment: 3.85; 2.61; 3.61 (SSA).
  - Liability Flows overall: 4.78; 2.75; 4.39 (SSA).
  - Asset Flows overall: 2.92; 1.69; 2.72 (SSA).
- Global and domestic drivers (annual analysis, 1980–2017):
  - US interest rates: A 100 basis point decline in the nominal US government bond yield implies an increase in net flows by about 0.2 to 0.4 of a percent of GDP; nonresident flows increase by about 0.3 to 0.5 of a percent of GDP.
  - Commodity prices: A 10 percent increase in the commodity price index implies an increase in nonresident flows by about 0.2 to 0.3 of a percent of GDP.
  - Domestic fundamentals: higher real GDP growth, higher real GDP per capita, greater trade openness, and better institutional quality attract more nonresident flows; higher external debt reduces inflows.
- High-frequency evidence:
  - A 1 standard deviation shock to the VIX (log) reduces fund flows by about 0.4 of a percent of GDP, raises bond yields by about 20 basis points, and lowers real stock returns by about 2 percentage points.
  - A 100 basis point increase in the US government bond yield associated with a reduction in fund flows of about 1 percent of GDP and a decline in real stock returns by about 1 percentage point.
  - Sensitivity of fund flows and asset prices to global factors has increased since the global financial crisis (post-crisis a 100 bps US yield rise implies ~1 percent of GDP reduction in flows and ~115 bps rise in bond yields).
- Heterogeneity and surge/reversal dynamics:
  - Surges defined as net capital flows (scaled by GDP) in top one-third for country and SSA sample.
  - A 100 basis point increase in the US interest rate lowers the likelihood of an inflow surge by about 2 percentage points and raises the likelihood of a large reversal by 2 percentage points; unconditional surge/reversal probability ~20 percent.
  - Countries with higher real GDP growth, better institutional quality, and more flexible exchange rate regimes face higher surge likelihood and lower reversal likelihood.
- Macro consequences by flow type (quantified):
  - Portfolio inflows: a 1 percent of GDP increase in portfolio inflows implies:
    - 0.3 of a percentage point larger real exchange rate appreciation relative to trend.
    - 0.2 of a percentage point wider gap between real output and trend.
    - 0.1 percent of GDP increase in credit to the private sector.
    - Little evidence of significant association with domestic investment or growth on average; appear to boost public consumption.
  - FDI: a 1 percent of GDP increase in FDI implies about a 0.5 of a percentage point higher investment ratio and lifts short-run economic growth by about 0.1 of a percentage point.
- Policy implications for capital flows:
  - Manage flows with attention to type (FDI vs. portfolio vs. loans), domestic use, and investor/borrower type.
  - When sovereigns tap international markets, be prudent: ensure borrowed resources are used effectively, enhance productivity, and preserve competitiveness.
  - Use structural policies to reduce nominal rigidities and facilitate real exchange rate adjustment; consider foreign exchange intervention to limit overvaluation and build reserves.
  - Adopt countercyclical macroeconomic and prudential policies to limit vulnerabilities and preserve debt sustainability.
  - Improve compilation and timeliness of balance of payments data.
  - To attract FDI, focus on macro stability and business climate improvements.

### Liability Flow Surge — High-Frequency Impacts and Institutional Quality
- Probit-based findings:
  - Predicted probability of liability flow surges and large reversals varies with institutional quality (estimated around the mean with 95 percent confidence intervals).
  - Better institutional quality raises surge probability and lowers reversal probability.
- Global shocks and asset prices:
  - A 1 standard deviation VIX shock (log) reduces flows by about 0.4 percent of GDP, raises bond yields by about 20 basis points, lowers real stock returns by about 2 percentage points.
  - A 100 basis point increase in US government bond yield reduces fund flows by about 1 percent of GDP and lowers real stock returns by about 1 percentage point.

---

### The Future of Work in Sub-Saharan Africa — Framing and Key Findings
- Employment challenge:
  - The region needs to create 20 million jobs per year over the next two decades to absorb the growing workforce.
  - United Nations projects a net increase in the working-age population (15–64 years) of 20 million people on average over the next 20 years.
- Technological context:
  - The Fourth Industrial Revolution includes AI, robotics, Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.
  - Estimates of potential job losses from AI/machine learning/robots in advanced economies range from 7 percent to 47 percent of the labor force.
- Structural starting point and opportunities:
  - Most employment in sub-Saharan Africa is in agriculture and consumer services, often informal; manufacturing sectors are generally limited.
  - Some technologies enable leapfrogging (examples: mobile phones for agriculture, drones for health logistics, 3-D printing in construction, mobile money for financial access, GPS and biometric systems for governance and payments).
  - New technologies may be easier to adopt in some areas, enabling new growth sectors, particularly services.

### Modeling and Scenario Insights
- Two-region model (advanced economy vs. low-income region such as SSA):
  - Shock: doubling robot productivity.
  - If labor and robots are complements:
    - Per capita GDP increase larger in SSA than in advanced economies (convergence); wages rise more than capital accumulation; labor share increases, especially in SSA.
  - If labor and robots are substitutes:
    - Per capita GDP increase larger in advanced economies (divergence); capital and robot stock rise more than wages; labor share falls in both regions, more so in advanced economies.
  - Economy-wide productivity improvements can offset adverse automation effects and support convergence.
- Scenario analysis (Oxford Scenario Planning Approach) — three 2040 scenarios:
  - Africa Arisen: technology complements humans; global integration persists; outcomes include productivity gains, services-led trade growth, transformed agriculture, emerging middle class, gig-economy volatility.
  - Africa for Africa: reshoring and inward-looking policies in advanced economies; SSA less affected by automation but faces climate drag; regional integration (Continental Free Trade Agreement) fosters entrepreneurship and small-scale manufacturing; persistent poverty and informality remain.
  - Africa Adrift: rapid automation and severe climate change; reshoring undermines manufacturing-led strategies; outcomes include stagnation, stranded assets, high debt, and large migration pressures.

### Policy Pillars for “Future-Proof” Jobs
- Get Connected:
  - Invest in traditional and digital infrastructure; internet penetration in SSA in 2016: SSA 20 percent; World 46 percent; EU 81 percent.
  - Broadband: fixed broadband cost highest in SSA; mobile broadband costs comparable in USD but least affordable when scaled by gross national income.
  - Public–private partnerships recommended given limited fiscal space.
- Education and skills:
  - Invest in flexible education systems emphasizing digital literacy, adaptability, lifelong learning, and secondary education expansion.
  - Introduce technology in classrooms and ensure full enrollment while preparing for uncertain future skill mixes.
- Smart urbanization:
  - Strengthen urban planning to create hotbeds for technological adoption and agglomeration benefits.
- Safety nets:
  - Expand social protection to cushion labor market volatility; leverage biometric ID and fintech for targeting and administration; revenue mobilization required to finance expanded safety nets.
- Trade integration:
  - Advance regional integration (Continental Free Trade Agreement) and trade facilitation to provide scale and attract FDI; hedge against weaker global integration.
- Productivity and complementary reforms:
  - Improve infrastructure, access to finance, business environment, and education quality to raise total factor productivity.
  - Closing efficiency gaps in manufacturing (0.5 percentage points), other industries (0.35 percentage points), and services (0.3 percentage points) could raise average TFP growth by about 1.5–2 percentage points; in such a scenario average medium-term growth during 2018–22 would reach about 6 percent vs. 4 percent baseline, increasing employment growth by 0.6–0.8 percentage points and net employment creation to about 16 million jobs by 2022.

### Practical Indicators and Exact Figures Preserved
- Jobs needed: 20 million jobs per year over 2018–35 (or next two decades).
- Internet penetration (2016): SSA 20 percent; World 46 percent; EU 81 percent (others listed).
- Estimated re-emergence of net fuel subsidies: increased by an average of 2 percent of GDP between early-2017 and April/May 2018 (to about 2 percent of GDP).
- International sovereign bond issuance: US$13.8 billion in the first half of 2018 for SSA frontier markets.

_Regional Economic Outlook: Sub‑Saharan Africa, October 2018 (sreo1018)._

### References  ............................................................................................................

### sreo1018 - References

### Recovery and Rising Risks
- Macroeconomic outlook strengthens: growth expected to increase from 2.7 percent in 2017 to 3.1 percent in 2018.
- Medium-term projection: growth expected to accelerate to about 4 percent on current policies.
- Inflation is abating; fiscal imbalances are being contained in many countries.
- Underlying vulnerabilities remain:
  - Domestic revenue mobilization has seen relatively little progress; non-commodity revenues declined in real terms in 2017 in some oil-exporting countries (Angola, Republic of Congo, Equatorial Guinea, Gabon).
  - Re-emergence of energy subsidies due to delayed adjustment of domestic fuel prices following oil price increases.
  - Domestic arrears remain large, with the stock amounting to about 5 percent of GDP on average at the end of 2017.
  - State-owned enterprises (SOEs) are becoming a major fiscal risk in some countries.
- Financial sector vulnerabilities:
  - High NPLs in several countries (Angola, Chad, Ghana, Equatorial Guinea, Mozambique) weigh on credit to the private sector and constrain financial intermediation.
  - In some countries, attractive returns on government securities have supported bank profitability despite vulnerabilities.
- External sector:
  - Current account balances little changed.
  - Financial inflows were strong, with Eurobond issuances at record highs in the first half of 2018.
  - Recent turbulence in emerging markets has increased spreads.
  - Reserve buffers have generally not been rebuilt; in half of the countries in the region, reserves remain below levels considered adequate.
- Downside risks:
  - Global policy uncertainty is unusually elevated.
  - Growth is slowing in most advanced economies and could slow further if trade tensions escalate.
  - Rising interest rates and a continued strong dollar could raise debt service burdens and the cost of new borrowing.

### Capital Flows to Sub-Saharan Africa: Causes and Consequences
- Recent pattern:
  - Cross-border capital flows from nonofficial sources have increased sharply since the global financial crisis.
  - Scaled by economic size, net capital flows to sub-Saharan Africa were higher than those to emerging market economies in recent years.
  - Much of the increase driven by nonresident inflows—particularly portfolio flows.
- Key drivers:
  - Global factors—United States interest rates, global risk aversion, and commodity prices—are important drivers of capital flows to the region.
  - Strong domestic fundamentals can mitigate risks associated with volatile capital flows.
- Macroeconomic consequences by flow type:
  - Portfolio flows:
    - More prone to move the real exchange rate and output above trend.
    - Tend to fuel credit growth.
    - Historically not strongly associated with domestic investment or growth.
    - Seem to boost public consumption (including social spending).
    - Vulnerabilities increase likelihood of a financial crisis.
  - Foreign direct investment:
    - Appears to directly spur domestic investment and support economic growth.
- Policy implications:
  - Policymakers need prudence to ensure borrowed resources are used effectively, enhance productivity, and promote sustainable economic growth.
  - Vigilance is warranted against the buildup of macroeconomic and financial imbalances.

### The Future of Work in Sub-Saharan Africa
- Labor market challenge:
  - Region needs to create 20 million jobs per year over the next two decades to absorb a growing workforce.
- Impact of technological change:
  - The Fourth Industrial Revolution will affect comparative advantage and the nature of work.
  - Analysis draws on formal economic models and scenario analysis to assess how global integration and climate change may shape opportunities.
- Scenarios and strategic focus:
  - Scenario analysis explores alternative pathways for the future of work (see scenario boxes in the source for details).
  - Overarching policy challenge: support new and emerging sectors that drive growth.
- Policy pillars to create “future-proof” jobs and harness demographic dividend:
  - Integration and connectivity, including traditional and digital infrastructure.
  - Education systems that keep pace with changing skill requirements.
  - Smart urbanization.
  - Safety nets for a volatile labor market.
  - Trade integration.
- Development strategies must adapt to demands and prospects of the Fourth Industrial Revolution to create jobs and advance Sustainable Development Goals.

### Key Statistics and Figures (preserved)
- Growth: 2.7 percent in 2017; 3.1 percent in 2018; medium-term ~4 percent.
- Jobs needed: 20 million jobs per year over the next two decades.
- Domestic arrears: about 5 percent of GDP on average at end-2017.
- Eurobond activity: record highs in the first half of 2018 (financial inflows).
- Reserve buffers: in half of the countries in the region, reserves remain below levels considered adequate.

*Regional Economic Outlook: Sub-Saharan Africa, October 2018 (sreo1018).*

### 1. Recovery and Rising Risks

### 1. Recovery and Rising Risks

### Key policy recommendations
- Implement fiscal strategies designed to reduce debt vulnerabilities consistent with a steady fiscal consolidation; ensure implementation even during temporary commodity price upswings or ahead of elections (noting upcoming elections in Nigeria, Senegal, and South Africa).
- Advance revenue mobilization:
  - Tax revenues on average are 3–5 percent of GDP below estimated potential.
  - Successful revenue mobilization episodes focus on basic institutions, effective and modern tax policy and administration, measures to build the tax base, simplification of the tax system, and tackling exemptions and incentives; reforms must be tailored to country circumstances.
- Enhance expenditure efficiency, including addressing re-emergence of energy subsidies by implementing automatic fuel pricing mechanisms (examples: Ghana and Mozambique) with mitigating measures to compensate the poor.
- Allow greater exchange rate flexibility where institutional setups permit and barring balance sheet vulnerabilities.
- Address growing financial sector weaknesses in a timely manner:
  - Recent progress includes reducing NPLs (Equatorial Guinea, Guinea-Bissau), strengthening capital buffers (Angola, Ghana, Mozambique), and adopting new prudential rules (CEMAC, WAEMU).
  - Persistent NPLs require comprehensive NPL reduction strategies.
- Pursue policies to foster private investment and enhance potential growth including opening to trade (African Continental Free Trade Area), promoting digital connectivity and flexible education systems, removing market distortions, encouraging financial deepening, ensuring a sound business environment, better allocating public spending, and ensuring adequate provision of public goods (including well-developed infrastructure).

### Macroeconomic context and global outlook
- Global growth projections:
  - Global growth is projected at 3.7 percent in 2018 and 2019, down from the 3.9 percent projection of the April 2018 World Economic Outlook (WEO).
- Commodities:
  - Outlook for energy points to higher prices relative to April 2018 projections; metals and other commodities exported by the region show mixed prospects.
- Global financial conditions:
  - Accommodative but tightened somewhat since mid-April 2018 with higher bond spreads and capital outflows from certain emerging and frontier markets.
  - International sovereign bond issuances by sub-Saharan African frontier markets in 2018 reached US$13.8 billion in the first half of the year, compared with US$7.6 billion for the whole year 2017.
  - Senegal issued US$2.2 billion Eurobonds in March 2018 (five times oversubscribed); Angola and Ghana issued US$3 billion and US$2 billion Eurobonds in May 2018 (three and four times oversubscribed, respectively). In July, Angola raised an additional US$500 million by reopening its May Eurobond.

### Growth performance and outlook
- Regional averages and drivers:
  - Average growth for the region (weighted by GDP in purchasing power parity terms) is expected to reach about 3.1 percent in 2018, up from 2.7 percent in 2017.
  - The recovery is driven mainly by oil exporters.
  - The recovery is expected to contribute about 0.7 percentage points to the region’s average growth in 2018 and lift activity in Nigeria’s trading partners through stronger remittances, financial spillovers, and import demand.
  - Spillovers example estimates: Benin’s growth +½ percentage points; Niger’s growth +⅓ percentage points.
- Country specifics:
  - Nigeria: expected to grow by 1.9 percent in 2018, up from 0.8 percent in 2017, mainly due to fewer disruptions in oil production and some non-oil pick-up.
  - South Africa: expected growth about 0.8 percent in 2018; medium-term stabilization at about 1.8 percent under current policies.
- Medium-term prospects:
  - Under current policies, growth is expected to plateau at about 2½ percent (noted as below the rate of population increase).
  - On current policies, growth is expected to accelerate over the medium term to about 4 percent, or 1½ percent in per capita terms.
- Employment needs:
  - With the number of sub-Saharan Africans reaching working age (15–64) projected at more than 100 million during 2030–35, the region will need to create on average 20 million jobs every year during 2018–35, which is twice as many as has been created on average over the past five years.

### Inflation and monetary conditions
- Inflation trends:
  - Inflation pressures are waning, especially in oil-exporting economies.
  - Average inflation in oil-exporting countries is expected to fall from 17 percent in 2017 to about 13 percent in 2018.
  - Elsewhere, inflation remains relatively low.
- Drivers include slow recovery, some tightening of monetary policy, higher agricultural production, and incomplete pass-through of higher oil prices.

### External buffers and reserves
- Current account and reserves:
  - Compared with 2017, current account balances are expected to improve in oil-exporting countries and deteriorate in other countries.
  - Foreign exchange reserve buffers are expected to remain below levels deemed adequate based on metrics derived from emerging and developing countries’ crises experiences.

### Fiscal consolidation, revenues, and fuel subsidies
- Fiscal balances:
  - The average fiscal deficit for the region is set to shrink from 4.2 percent of GDP in 2017 to 3.3 percent in 2018.
  - Improvement in oil exporters largely from increased oil revenues and cuts in capital expenditures; Nigeria is a notable exception with public investment having doubled over the last two years.
- Medium-term fiscal plans:
  - Domestic revenues are envisaged to rise by about 2½ percent of GDP in oil-exporting countries, and only by ½ percent of GDP in other countries.
- Revenue mobilization gap:
  - Under current medium-term fiscal plans, the revenue gap is estimated at 3–5 percent of GDP on average across countries and is not expected to be closed.
- Fuel pricing and subsidies:
  - Between early 2017 and April 2018, the median pass-through coefficient was zero for oil exporters and 47 percent for oil importers.
  - Fuel prices are on average about US$1.09 per liter, implying an estimated average fuel subsidy of 2 percent of GDP per annum once transportation and distribution costs, profit margins, and taxes are taken into account.
  - Re-emergence of fuel subsidies threatens the quality of fiscal adjustment; automatic fuel pricing mechanisms are recommended alongside mitigating measures for the poor.

### Balance-sheet and debt vulnerabilities
- Debt-distress classifications (2017):
  - In 2017, 15 sub-Saharan African countries were classified at high risk of debt distress or in debt distress (examples listed in source).
- Public debt and dynamics:
  - Reflecting fiscal consolidations and growth rebound, the average level of public debt in 2018 is expected to remain around its 2016 level, at about 57 percent of GDP, with wide heterogeneity across countries.
  - Debt dynamics for countries in debt distress or at high risk mainly reflect large primary deficits widened by the commodity price collapse.
  - Exchange rate depreciations in several cases have given rise to negative balance sheet effects and contributed to deterioration in debt solvency and liquidity indicators.

_Italic line: Prepared by a team led by Papa N’Diaye and coordinated by Romain Bouis; chapter composed by Reda Cherif, Jesus Gonzalez-Garcia, Cleary Haines, Miguel Perreira Mendes, Nkunde Mwase, Torsten Wezel, and Jaroslaw Wieczorek._

### 1.  RECOVERY AND RISING RISKS

### 1.  RECOVERY AND RISING RISKS

### Debt and Fiscal Risks
- The share of foreign-currency denominated public debt in total public debt increased across sub-Saharan Africa from an average of 23 percent in 2011–13 to 32 percent of GDP in 2017.
- The share of debt held by private banks and bondholders has increased to about 15 percent.
- Arrears amount to about 5 percent of GDP on average (end-2017 mean) and exceed 20 percent in several countries (Equatorial Guinea, Gabon, The Gambia).
- Accumulated SOE liabilities to the economy have occasionally reached 10 percent of GDP or more (Cabo Verde, Cameroon, Ghana, São Tomé and Príncipe, South Africa), implying contingent fiscal liabilities that may compromise debt sustainability.
- Several countries have cleared SOE arrears (Burkina Faso, Côte d’Ivoire) or increased SOE transparency through audits (Benin, Niger, Seychelles) and official reports (Cabo Verde, Ghana, Liberia).
- Direct support of SOEs’ quasi-fiscal activities via subsidies or on-lending represents a considerable budgetary burden in some cases, crowding out higher-priority public spending (Botswana, Cabo Verde, Madagascar).

### Banking Sector and Credit Growth
- Nonperforming loans (NPLs) are high in most sub-Saharan African economies; accumulation has been especially rapid in state-owned banks (Angola, Gabon).
- Contributing factors to high NPLs include economic slowdown, poor risk management (Angola), high levels of arrears to government suppliers (Chad), and delays in repayment (Equatorial Guinea, Gabon, Ghana, Malawi).
- In some cases (Ghana), more stringent loan classification requirements and earlier loss recognition contributed to higher reported NPLs; in other countries NPLs may be understated due to evergreening.
- Bad loans have eroded commercial banks’ profitability in a few countries; in others (Nigeria, WAEMU) attractive returns on government securities have supported profitability.
- Capital shortfalls have been severe in several jurisdictions (Ghana, Guinea, Guinea-Bissau, Malawi, Nigeria, Togo).
- High NPL ratios and slowing activity have contributed to slowing credit to the private sector in three-quarters of countries, most notably in Botswana, Equatorial Guinea, Gabon, Ghana, Guinea, Guinea-Bissau, Liberia, Malawi, and São Tomé and Príncipe.
- Other factors slowing private credit include weak growth, tighter monetary conditions (Cameroon, Equatorial Guinea), high household indebtedness (Botswana), political/economic uncertainty (Gabon, Ghana, Guinea), and redirection of bank lending toward government securities (Guinea, Malawi).
- Additional banking risks include foreign currency liquidity mismatches (Angola) and high loan concentration (Benin, Malawi, Namibia).

### Risks to the Outlook
- Trade tensions: Simulations indicate trade tensions among the United States, other major advanced economies, and China could entail a cumulative loss of GDP in sub-Saharan Africa of up to 1½ percent of GDP during 2018–21.
  - The scenario assumes multiple rounds of tariffs including: US tariffs on steel (25 percent) and aluminum (10 percent); a 25 percent tariff on US$50 billion of imports from China; a subsequent 25 percent tariff on US$200 billion of imports from China with Chinese tariffs varying between 5 and 25 percent on US$60 billion of imports from the United States; and a 25 percent tariff on all imported cars and car parts (about US$350 billion), with retaliatory measures.
  - The estimated impact reflects adverse effects on global demand, import demand from China, commodity prices, and domestic investment.
- Tighter global financial conditions: Faster-than-envisaged monetary policy normalization or a sudden shift in investor sentiment could constrain financing and growth.
  - Frontier markets have so far weathered bouts of volatility and attendant tightening in spreads since mid-April 2018, but persistent pressures could produce significant spillovers.
  - The probability of a large reversal in foreign flows in sub-Saharan Africa is significantly higher as US interest rates rise; around one-third of currency crises have been associated with reversals in foreign flows.
  - Large amounts of maturing bonds for the region’s frontier markets in 2019–20 and in 2024–25 suggest substantial refinancing risks.
  - Growing sovereign-banks linkages increase banking sector vulnerability to tightened global financial conditions and fiscal challenges.
- Domestic risks:
  - Policy slippages: Most countries have medium-term fiscal plans to achieve sustainable debt levels, but implementation is required; resisting populist pressures to ease consolidation is important, especially ahead of elections in 2019 in countries such as Nigeria, Senegal, and South Africa.
  - Security risks: Elevated civil unrest and terrorist attacks impose large human and economic costs.
    - UN-OCHA estimates security issues will result in more than 30 million people suffering from food insecurity in 2018 (UN-OCHA 2018).
    - Internally displaced persons rose from about 4 million in 2012 to about 11 million in 2017, with largest increases in the Democratic Republic of Congo, Ethiopia, and South Sudan.
    - In 2017 there were 4 million people seeking refuge in other sub-Saharan African countries, up from 1 million in 2010 (UNHCR 2018).
    - About 170,000 migrants from sub-Saharan Africa sought asylum in Europe in 2017, and about 1 million during 2010–17 (Connor 2018).

### Policy Recommendations and Ongoing Reforms
- Increasing fiscal space
  - Advance revenue mobilization:
    - Average revenue is estimated at 3–5 percent of GDP below potential, indicating substantial scope to raise revenue.
    - Successful revenue mobilization in the region has involved modern tax policy and administration (taxpayer identification numbers, semi-autonomous revenue authority, the VAT, taxpayer segmentation), building the tax base, simplifying the tax system, and tackling exemptions and incentives.
  - Enhance expenditure efficiency:
    - Address re-emergence of energy subsidies through automatic fuel pricing mechanisms (as in Ghana and Mozambique) and mitigate impacts on the poor.
    - Improve public investment efficiency by strengthening infrastructure governance for planning, allocation, and implementation.
    - Enhance public financial management to avoid arrears and misallocation, including reforming loss-making SOEs.
    - Undertake carefully designed and targeted wage bill reform given many public-sector workers are employed in education and healthcare.
  - Improve debt management frameworks to better manage currency and interest rate risks:
    - Strengthen capacity for cost-risk analysis of borrowing options and manage repayments on commercial borrowing (Kenya, Uganda).
    - Update medium-term debt strategies to address contingent liability risks (Cabo Verde, Ghana, Kenya, Tanzania).
    - Deepen domestic sovereign debt markets (Ghana, Kenya, Namibia, Nigeria, Tanzania) to lower currency and interest rate risks.
- Addressing financial sector weaknesses
  - Implement comprehensive NPL reduction strategies:
    - Regulatory efforts to accelerate loss recognition.
    - Stronger supervisory focus on recovery actions by banks.
    - Reforms of insolvency and debt enforcement frameworks to enable swift restructuring of distressed but viable borrowers.
    - Support consistency and efficiency of judicial proceedings.
    - Consider permanent macroprudential buffers (on top of micro-prudential minimum) that can be relaxed at regulators’ discretion in the event of shocks.
  - Recent country measures:
    - Strengthening creditor rights and reducing lengthy judicial processes for collateral recovery (Guinea-Bissau).
    - Halting net accumulation of public domestic arrears to the private sector (Equatorial Guinea).
    - Improving credit information systems, modernizing insolvency regimes, and implementing financial education programs for MSMEs.
    - Raising minimum statutory capital requirements (Angola, Ghana, Mozambique) and conducting asset quality reviews (Angola).
    - Regulatory updates in CEMAC, including definitions of systemically important institutions, accelerated resolution of small MFIs, and an emergency liquidity assistance framework.
    - WAEMU adopted new prudential rules aligned with the Basel II/III framework.

*Regional Economic Outlook: Sub‑Saharan Africa — Chapter 1 (Recovery and Rising Risks).*

### 1.  RECOVERY AND RISING RISKS

### 1.  RECOVERY AND RISING RISKS

### Entrenching external adjustment
- Commodity-exporting sub-Saharan African countries experienced historically large negative terms of trade shock in late-2014 and 2015 and have seen a progressive improvement in their current account balances in 2016 and 2017 but did little to increase their resilience to such shocks.
- The adjustment following the shock relied initially mainly on import compression and later on a gradual improvement in the terms of trade and a recovery in external demand.
- Exchange rates and relative prices have played a limited role because:
  - 10 out of the 23 commodity-exporting countries maintain fixed exchange rate regimes.
  - Low sensitivity of current account balances to real exchange rate changes due to limited responsiveness of output and exports to real exchange rate changes, reflecting a small share of manufacturing.
- Contribution of relative prices to adjustment:
  - Largest in non-resource-intensive countries.
  - Oil-exporting countries and non-oil-resource-intensive countries have benefitted little from changes in relative prices.
- Adjustment needed to align current account balances with fundamentals and desired policies is not large.
- Structural reforms to improve flexibility and reduce dependence on commodity exports:
  - Product market reforms: improve product market regulation and encourage competition (Angola, Côte d’Ivoire, South Africa); provide reliable basic industrial inputs such as electricity (Angola, Côte d’Ivoire, Nigeria); improve efficiency and finances of SOEs in key network sectors (Angola, Cameroon, Côte d’Ivoire, South Africa); improve access to credit (Angola, Cameroon, Nigeria).
  - Labor market reforms: reduce skills mismatches through better education and vocational training (Botswana, Namibia, South Africa); minimize side effects of collective bargaining agreements; reduce hiring and firing barriers (South Africa).
- Such reforms would enhance the sensitivity of current account balances to real exchange rate movements.

*Italic: Source: IMF staff calculations and text from the chapter.*

### Improving policies to smooth output fluctuations
- Output fluctuations in the region are highly impacted by commodity price volatility.
- Empirical results (panel VAR and related analyses) indicate commodity price shocks are a key driver of real GDP volatility:
  - Contribution of oil price volatility to output fluctuations ranges from 0 to 2 percent at the short- to long-term horizons in diversified economies, compared with 10 percent in less diversified economies (Figure 1.25).
- Promoting greater economic diversification would enhance resilience to commodity price fluctuations; drivers include a better investment climate, labor mobility, higher quality infrastructure, and human capital.
- Fiscal policy framework findings and needs:
  - Sub-Saharan African countries tend to contract their primary deficits when commodity prices are high but only by a small margin.
  - When commodity prices are low, primary fiscal deficits tend to increase in half of oil exporters and other resource-intensive countries.
  - Several countries face the challenge of building sufficient fiscal buffers during good times.
- Recommended fiscal policy measures to enhance resilience:
  - Fiscal rules to induce swifter consolidation during upturns and bolster fiscal space; about 21 sub-Saharan African countries are using some form of fiscal rule, but many need greater emphasis on improving transparency and enforcement.
    - IMF staff analysis finds most sub-Saharan African low-income and developing countries that have debt rules are within comfort levels, as their debt-to-GDP ratios in 2017 are below debt ceilings set under the fiscal rules (Benin, Burkina Faso, Mali, Niger). Fiscal rules in some countries should be aligned with countries’ debt-servicing capacity.
  - Adequate Public Financial Management (PFM) systems with required elements:
    1. A well-established medium-term budget framework, focusing on medium-term fiscal priorities.
    2. A top-down budgeting process and a comprehensive budget reporting system.
    3. Effective budget execution systems (commitment controls and cash management).
    4. Reliable data and technical forecasting capacity (to minimize forecasting errors).
    5. Effective internal and external audit systems (to ensure accountability).
    6. Regular publication of fiscal data to ensure transparency.
  - Greater use of contingent financial instruments (insurance schemes, forward markets) to hedge commodity price risk; such instruments can reduce procyclicality and provide prompt liquidity but are seldom used due to potentially large cost, lack of liquidity, complexity, and single-risk coverage. A few countries have used market-based instruments (Ethiopia, Ghana, Malawi) with varying degrees of success.
  - Adequate institutional frameworks to manage revenue inflows from natural resources for commodity exporters.
- Monetary policy recommendations to anchor inflation expectations and smooth output:
  - Reduce excess liquidity in banking systems (especially in CEMAC) through active use of open market operations and/or increasing reserve requirements.
  - Develop interbank markets by improving information on counterparty risks and developing repo transactions based on public debt securities.
  - Bring and maintain short-term interest rates to positive territory in real terms (especially in Angola, Nigeria).
  - Narrow the overnight interest rate corridor and establish a symmetrical interest rate corridor with rates linked to the key policy rate.
  - Develop robust forward-looking frameworks for forecasting liquidity and managing inflation.
  - Improve communication of monetary policy actions and objectives to the public; ease interest rate controls; limit fiscal dominance; strengthen central bank independence.

*Italic: Source: IMF staff calculations and text from the chapter.*

### Living Standards Could Rise Faster
- Projected per capita growth:
  - Projected 1.5 percent per capita growth on average over the medium term for sub-Saharan Africa.
  - This rate is commensurate with Middle East and Central Asia but much lower than Asia, developing Europe, and Latin America.
- Many sub-Saharan African economies are projected to grow far below rates expected in countries from other regions at similar per capita income levels; several large economies, including Nigeria and South Africa, are expected to see their real per capita income fall or stagnate over the medium term.
- Differences with faster-growing comparators mainly stem from total factor productivity (TFP) growth and physical capital accumulation.
- Productivity growth can be raised by facilitating movement of labor and capital between and within sectors, broadening productivity gains from agriculture into other sectors.
- The Fourth Industrial Revolution could increase productivity by enabling leapfrogging of old technologies and some infrastructure but may also create challenges (e.g., reshoring of manufacturing to advanced economies).
- Policy priorities to capture opportunities from technological progress:
  - Promote digital connectivity and a flexible education system.
  - Remove market distortions and better allocate public spending.
  - Foster private investment and risk-taking: improve financial deepening, trade openness and integration (including within the African Continental Free Trade Area), ensure sound business environment (stronger regulatory and resolution frameworks), and provide adequate public goods including well-developed infrastructure.
- Potential gains if efficiency gaps are closed:
  - Closing efficiency gaps in manufacturing (about 0.5 percentage points), other industries (0.35 percentage points), and services (0.3 percentage points) could increase average TFP growth by about 1.5–2 percentage points over the medium term.
  - In such a scenario, average medium-term growth during 2018–22 would reach about 6 percent, compared to 4 percent in the baseline scenario.
  - Higher growth could raise employment growth by an additional 0.6–0.8 percentage points over the medium term, lifting total net employment creation to about 16 million jobs by 2022, closer to the 20 million needed to absorb new entrants to labor markets.
  - Raising growth would also accelerate progress toward reaching the SDGs.

*Italic: Source: IMF staff calculations and chapter text.*

### Box 1.1. The Re-Emergence of Fuel (Energy) Subsidies in Sub-Saharan Africa

### Box 1.1. The Re-Emergence of Fuel (Energy) Subsidies in Sub-Saharan Africa

### Overview
- Universal fuel and energy subsidies have been prevalent in sub-Saharan Africa.
- Rationale: subsidies can provide a highly visible benefit for important segments of the population.
- Drawbacks: poorly targeted; negative impact on economic efficiency by fostering fuel overconsumption, curtailing investment and maintenance in the oil-refining and electricity sectors, and crowding out more productive government spending.

### Pass-through dynamics of international fuel prices to domestic retail prices
- Period: January 2017 to April/May 2018
  - Median pass-through coefficient (nominal change in domestic retail prices divided by nominal change in international prices, both in domestic currency):
    - Oil exporters: zero
    - Oil importers: 47 percent
- Earlier period: June 2014 to January 2017 (when oil prices fell sharply)
  - Median pass-through coefficient:
    - Oil exporters: –19 percent
    - Oil importers: 62 percent

### Fiscal and macroeconomic impact on subsidies
- Between mid-2014 and early 2017:
  - Fuel subsidies in sub-Saharan Africa would have fallen by 1 to 2 percent of GDP per annum.
- Between early-2017 and April/May 2018:
  - Staff analysis suggests net fuel subsidies would have increased by an average of 2 percent of GDP (to about 2 percent of GDP).

### Authors
- This box was prepared by Mauricio Villafuerte with assistance from Tunc Gursoy.

*International Monetary Fund*

### 2. CAPITAL FLOWS TO SUB-SAHARAN AFRICA: CAUSES AND CONSEQUENCES

### 2. CAPITAL FLOWS TO SUB-SAHARAN AFRICA: CAUSES AND CONSEQUENCES

### Evolution of capital flows
- The region has become more globally financially integrated with a gradual relaxation of financial account restrictions and a sharp increase in nonofficial capital flows—especially since the global financial crisis.
- Nonofficial net capital flows to sub-Saharan Africa:
  - totaled about $4 billion during the 1980s and 1990s;
  - increased six-fold to $25 billion in 2007;
  - doubled to about $60 billion in 2017.
- Net capital flows to sub-Saharan Africa have been at a historically high level (3 percent of GDP) and exceeded those to emerging market economies (by about 2 percent of GDP) in 2015–17.
- Increase in net flows largely driven by liability (nonresident) flows:
  - liability flows increased from $70 billion in 2007 to $113 billion in 2017.
- Trends remain similar excluding South Africa: net flows rose from about $1 billion in 2007 to about $44 billion in 2017, with liability flows increasing by about $50 billion.
- Composition and recipients:
  - A large share of portfolio debt flows appear directed to the public sector (comparison of sovereign and corporate bond issuances).
  - FDI shifted from extractive sectors (1980s–1990s) to manufacturing and services in recent years.
- Rise in nonofficial capital flows coincided with a declining trend in official development assistance and notable increases in sovereign bond issuances.
- Asset (domestic resident) side: domestic residents continued to invest abroad on a net basis; outflows concentrated in direct and other investment categories; FDI outflows mainly driven by Mauritius.

### Stocks and debt composition
- Accumulation of flows into stocks:
  - five-fold increase in the stock of external liabilities for sub-Saharan Africa since 2000;
  - stock of external debt has more than doubled since 2000.
- Short-term debt share of total external debt:
  - increased from about 8 percent in the early 2000s to 14 percent in the last few years.
- Sub-Saharan Africa’s external debt is dominated by the public sector:
  - share of public debt in total external debt, on average, amounted to about 80 percent in 2017.

### Shifting patterns of recipients
- Since the global financial crisis, the share of flows received by non-resource-intensive, mostly low-income countries has increased relative to resource-intensive countries.
- Among non-resource-intensive countries, Côte d’Ivoire, Ethiopia, Kenya, and Mauritius together received more than 40 percent of inflows during 2015–17.
- While concentrated in a few countries, flows have risen significantly across the majority of countries in absolute terms and relative to GDP.
- Average net flow received by sub-Saharan African countries:
  - about 0.5 of a percent of GDP in 2000;
  - increased to 3 percent in 2007;
  - increased further to 5 percent in 2017.
- Analytic definition: “surges” are net capital flows (scaled by GDP) that lie in both the country’s own and the sub-Saharan Africa sample’s top one-third of observations.

### Volatility in capital flows
- Volatility has increased as magnitudes have risen; both nonresident and resident flows (scaled by GDP) have become more volatile in the last two decades, with a more pronounced increase for nonresident flows.
- Nonresident flows are more volatile than resident flows; among categories, other investment has been most volatile, followed by FDI.
- Volatility statistics (median of the standard deviation of flows, percent of GDP; outliers excluded):
  - Net Financial Flows: 1980–2017 = 5.66; 1980–99 = 3.07; 2000–17 = 5.73 for SSA; and 4.13, 3.98, 3.76 for EMEs respectively.
  - Net FDI: 2.16; 1.09; 2.36 (SSA) and 1.44; 1.13; 1.21 (EMEs).
  - Net portfolio: 0.68; 0.08; 0.59 (SSA) and 1.61; 1.22; 1.84 (EMEs).
  - Net other investment: 3.85; 2.61; 3.61 (SSA) and 3.25; 3.30; 2.62 (EMEs).
  - Liability Flows overall: 4.78; 2.75; 4.39 (SSA) and 3.78; 4.56; 3.24 (EMEs).
  - Liability FDI: 2.54; 0.96; 2.28 (SSA) and 1.49; 1.31; 1.10 (EMEs).
  - Liability portfolio: 0.28; 0.03; 0.35 (SSA) and 1.53; 0.89; 1.57 (EMEs).
  - Liability other investment: 3.34; 2.15; 3.38 (SSA) and 2.81; 2.93; 1.61 (EMEs).
  - Asset Flows overall: 2.92; 1.69; 2.72 (SSA) and 1.94; 1.12; 1.93 (EMEs).
  - Asset FDI: 0.27; 0.08; 0.28 (SSA) and 0.70; 0.18; 0.71 (EMEs).
  - Asset portfolio: 0.21; 0.03; 0.18 (SSA) and 0.78; 0.20; 0.83 (EMEs).
  - Asset other investment: 1.83; 1.33; 2.15 (SSA) and 1.64; 1.09; 1.66 (EMEs).
- The volatility of FDI is driven by reductions rather than reversals; probability of experiencing negative flows after positive flows is lowest for FDI, highest for other investment and portfolio debt.
- Considerable heterogeneity across countries; flows most volatile for oil exporters.
- Overall, volatility of both nonresident and resident flows to sub-Saharan Africa is generally higher than to emerging market economies.

### Drivers of capital flows
- Empirical analysis (annual data, 1980–2017) identifies global and domestic drivers.
- Global factors:
  - US interest rates (proxied by US 10-year government bond yield) significantly affect net flows:
    - A 100 basis point decline in the nominal US government bond yield, on average, implies an increase in net flows by about 0.2 to 0.4 of a percent of GDP.
    - Much of this impact stems from an increase in nonresident flows: a 100 basis points decline in US government bond yield increases nonresident flows by about 0.3 to 0.5 of a percent of GDP.
  - International commodity prices:
    - A 10 percent increase in the commodity price index implies an increase in nonresident flows by about 0.2 to 0.3 of a percent of GDP.
- Domestic factors:
  - Countries with better macroeconomic performance (measured by real GDP growth), higher real GDP per capita, and a greater need for external financing receive more inflows on a net basis.
  - Evidence that countries with greater trade openness, higher economic growth and per capita income, and better institutional quality attract more nonresident flows.
  - Countries with higher external debt receive fewer inflows.
- Heterogeneity by flow type:
  - US interest rates and commodity prices have a stronger effect on inward FDI than on other types of flows.
  - Global market volatility has a statistically stronger effect on foreign portfolio flows.
  - Quantitative examples:
    - A 100 basis point reduction in the US government bond yield implies an increase of about 0.2 percent of GDP of FDI and about 0.03 of a percent of GDP increase in foreign portfolio investment to sub-Saharan Africa.
    - A one standard deviation shock to the global market volatility index reduces portfolio flows to sub-Saharan Africa by about 0.1 percent of GDP but has no statistically significant effect on FDI.

### Surges and reversals
- Frequency of foreign capital inflow surges to sub-Saharan Africa has increased over time.
- Effect of global factors on surges and reversals (asymmetric impacts):
  - A 100 basis point increase in the US interest rate around the mean value:
    - lowers the likelihood of an inflow surge by about 2 percentage points;
    - raises the likelihood of a large reversal by 2 percentage points.
    - unconditional surge and reversal probability in the estimated sample is about 20 percent.
  - An increase in international commodity prices has a strong impact on the likelihood of a surge across sub-Saharan Africa countries, but is only statistically significant for the probability of a reversal in resource-intensive countries.
- Other factors:
  - Higher real GDP growth, better institutional quality, and more flexible exchange rate regimes increase the likelihood of experiencing an inflow surge and lower the likelihood of a sudden reversal.
  - The finding that more flexible exchange rate regimes experience a higher surge likelihood in sub-Saharan Africa contrasts with evidence for emerging market economies (where fixed regimes receive larger inflows).

### Global financial cycle and high-frequency evidence
- Analysis using high-frequency monthly data (bond and equity fund flows; bond yields and stock returns) for a sub-sample of sub-Saharan African countries over 2000–17 indicates:
  - Global factors such as US interest rates and global risk appetite (proxied by the VIX index) are important in driving asset price and investor fund flow co-movements.
  - These analyses point to the connection between sub-Saharan African financial conditions and the “global financial cycle,” defined as the co-movement in global and domestic financial conditions across countries.

*Source: sreo1018 - 2. CAPITAL FLOWS TO SUB-SAHARAN AFRICA: CAUSES AND CONSEQUENCES*

### 1. Liability Flow Surge

### 1. Liability Flow Surge

### Predicted probability and institutional quality
- Probit estimates (controlling for external factors: US interest rate; commodity prices; S&P 500 index volatility; and domestic factors: lagged current account balance to GDP, lagged trade openness, log real GDP per capita, real GDP growth, de facto exchange rate regime, external debt to GDP, international reserves to GDP, and country-fixed effects) show:
  - Predicted probability of experiencing a liability flow surge varies with the institutional quality index (displayed around the mean with 95 percent confidence intervals).
  - Predicted probability of experiencing a large liability flow reversal also varies with the institutional quality index (displayed around the mean with 95 percent confidence intervals).

### Impact of global factors on fund flows and asset prices
- A 1 standard deviation shock to the VIX index (in log terms):
  - Reduces fund flows by about 0.4 of a percent of GDP.
  - Increases bond yields by about 20 basis points.
  - Lowers real stock returns by about 2 percentage points.
- A 100 basis point increase in the US government bond yield:
  - Is associated, on average, with a reduction in fund flows of about 1 percent of GDP.
  - Is associated with a proportionate increase in bond yields.
  - Is associated with a decline in real stock returns by about 1 percentage point.
- Commodity prices also affect bond and equity fund flows, bond yields, and stock prices; commodity price effects are significantly larger for sub-Saharan Africa than for the emerging market economies sample.
- The sensitivity of both fund flows and asset prices to global factors has generally increased since the global financial crisis:
  - Before the crisis, a 100 basis point increase in the US government bond yield had a statistically negligible impact on fund flows and bond yields.
  - Since the crisis, a 100 basis point increase in the US government bond yield has implied a reduction in flows of about 1 percent of GDP and a rise in bond yields of about 115 basis points.
- These results indicate that sub-Saharan Africa has become increasingly connected with the global financial cycle, with domestic financial conditions (as captured by asset prices) moving in tandem with global financial conditions.

### Macroeconomic consequences of capital inflows by type
- Portfolio (nonresident) flows:
  - Tend to move the real exchange rate and output above trend and fuel credit growth.
  - Quantified impacts of a 1 percent of GDP increase in portfolio inflows:
    - 0.3 of a percentage point larger real exchange rate appreciation relative to the trend.
    - 0.2 of a percentage point wider gap between real output and trend.
    - 0.1 percent of GDP increase in credit to the private sector.
  - Portfolio flows show little evidence of being significantly associated, on average, with domestic investment (public or private) or economic growth in sub-Saharan Africa.
  - Portfolio flows appear to be positively associated with public consumption (including social spending).
- Foreign direct investment (FDI):
  - Strongly associated with both private and total investment.
  - Quantified impacts:
    - A 1 percent of GDP increase in FDI implies about a 0.5 of a percentage point higher investment ratio.
    - A 1 percent of GDP higher level of FDI lifts the short-run economic growth rate by about 0.1 of a percentage point.
  - FDI appears to be less prone to generating macroeconomic vulnerabilities and more likely to energize private investment and growth.

### Vulnerabilities and stability implications
- Vulnerabilities associated with portfolio inflows include currency overvaluation, economic overheating, and rapid credit growth—factors typically associated with an increased likelihood of a financial crisis.
- Given generally low levels of financial development in sub-Saharan Africa, expansion of domestic credit could reflect improved access to financial services but underscores the need for effective credit risk monitoring and management capacity in the financial sector.
- A large reversal of portfolio flows could lead to currency depreciation pressures and a spike in interest rates with attendant consequences for economic stability and growth.
- The way surge episodes are managed matters: limiting macroeconomic and financial vulnerabilities during inflow booms can significantly reduce the likelihood of a hard landing when global financial conditions become less conducive.

### Policy recommendations and implications
- Manage capital flows with attention to the nature of capital (FDI, portfolio, loans, etc.), its domestic use and impact, and the type of investor and borrower.
- When sovereigns tap international capital markets to finance development initiatives:
  - Be prudent and ensure borrowed resources are utilized effectively, enhance productivity, and promote economic growth.
  - Be mindful of consequences for exchange rates—instability and misalignments could hurt the tradable sector and undermine competitiveness.
  - Structural policies to reduce nominal rigidities and facilitate real exchange rate adjustment could play a useful role.
  - In some cases, foreign exchange intervention to limit currency overvaluation and build adequate reserve buffers may be warranted.
- Vigilance against economic overheating and buildup of private and public sector balance sheet vulnerabilities is warranted to mitigate the risk of a hard landing when flows recede.
  - Adopt countercyclical macroeconomic and prudential policies to limit such vulnerabilities and preserve debt sustainability.
- Improve the compilation and timeliness of balance of payments data to monitor flows in real time and implement policy actions swiftly.
- To attract more FDI (less prone to generating vulnerabilities and more likely to spur private investment and growth), focus on macroeconomic stability and improving the business climate.
- Strong domestic fundamentals will be increasingly important in attracting capital as global financial conditions may tighten with the normalization of monetary policy in advanced economies.

*Source: IMF staff estimates (sreo1018 - 1. Liability Flow Surge).*

### Annex with additional figures and results for this chapter is available online.

### sreo1018 - Annex with additional figures and results for this chapter is available online.

### Overview
- Topic: The future of work in sub-Saharan Africa in the context of the Fourth Industrial Revolution.
- Framing questions: How can sub-Saharan Africa create the 20 million jobs per year needed over the next two decades to absorb its growing workforce? What will the jobs of the future look like? What skills, infrastructure, and policies are critical?
- Definition: The Fourth Industrial Revolution is characterized by breakthroughs in artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.
- Demographic note: The United Nations projects a net increase in the working-age population (15–64 years) in sub-Saharan Africa of 20 million people on average over the next 20 years.

### Main findings
- The future of work has already begun and matters for policymakers today. The Fourth Industrial Revolution is redefining how and where goods are produced.
- Some new technologies are easier to adopt and adapt in sub-Saharan Africa, enabling potential leapfrogging of infrastructure and creation of new growth sectors, particularly in services.
- There is considerable uncertainty over the impact of technology: sub-Saharan Africa may be less exposed than advanced economies to direct automation of existing jobs given structural differences and wage levels, but technological substitution for low-skilled workers can lead to “reshoring” of production to advanced economies, undermining traditional manufacturing-led growth strategies.
- Today’s policy choices can shape outcomes: governments can facilitate and support economic and labor adjustments to emerging opportunities.
- Integration and connectivity are key pillars of successful growth policies: traditional and digital infrastructure, education that keeps pace with changing skill requirements, smart urbanization, safety nets for a volatile labor market, and trade integration.

### The impact of technological change: will machines replace workers?
- Core mechanism: Automation and falling prices of capital shift production toward capital and away from labor, particularly for routine tasks; artificial intelligence may take over high-skilled nonroutine jobs.
- Historical context: Previous general-purpose technologies (steam engine, electricity, information and communication technologies) yielded productivity gains and shifted employment across sectors (e.g., agriculture → manufacturing → services) after difficult transition periods.
- Uncertainty in estimates for advanced economies: job losses arising from artificial intelligence, machine learning and robots range from 7 percent to 47 percent of the labor force (cited studies: McKinsey Global Institute 2017; Frey and Osborne 2017; Nedelkoska and Quintini 2018; Borland and Coelli 2017).
- Structural starting point for sub-Saharan Africa: most employment is in agriculture and consumer services, often informal and characterized by income volatility; most countries lack a well-established manufacturing sector; infrastructure typically falls short.

### Examples of technological adoption in sub-Saharan Africa
- Agriculture: mobile phones/smartphones provide weather and market information, agronomic advice, pest identification and treatment.
- Health/logistics: drones deliver supplies to health centers in rural areas.
- Construction: a 3-D printer can “build” a house in a single day at low costs (example cited).
- Governance and payments: Ghana uses GPS to establish addresses; South Africa uses biometric information and payment cards to deliver social grants; mobile money (developed in Kenya) expanded financial access.

### Modeling the impact of the Fourth Industrial Revolution (two-region model)
- Model setup:
  - World divided into two regions: an advanced economy region and a low-income region such as sub-Saharan Africa.
  - Production uses traditional capital, labor, and “robots” (broadly defined to include automation, machine learning, and artificial intelligence).
  - Advanced economy is more productive than sub-Saharan Africa, creating a per capita income gap.
- Shock studied: doubling the productivity of robots (an increase in robot productivity).
- General outcome of the robot-productivity shock: firms invest in robots and physical capital, increasing production; both regions see an increase in per capita GDP in the long run.
- Critical distinction: results depend on whether robots and labor are complements or substitutes.

### Model results (qualitative and directional)
- If labor and robots are complements:
  - The increase in per capita GDP is larger in sub-Saharan Africa than in the advanced economies (convergence).
  - Rationale: lower wages in sub-Saharan Africa make it more profitable to invest in robots that are combined with relatively cheap labor.
  - Wages increase more than the increase in the stock of capital, leading to a higher labor share in both regions, with the increase being larger for sub-Saharan Africa.
- If labor and robots are substitutes:
  - The increase in per capita GDP is larger in the advanced economies than in sub-Saharan Africa (the region falls further behind).
  - Rationale: introducing robots is most profitable where wages are high because they save on the cost of employing workers; capital flows toward advanced economies during the transition.
  - Capital and robot stock increase by more than wages, leading to a fall in labor share in both regions; the fall in labor share is larger in advanced economies, suggesting higher growth there may be associated with higher inequality.
- Supplementary model insight:
  - Overall productivity increases (economy-wide) can have a larger positive impact on incomes than robot-productivity increases alone.
  - Policy implication: sub-Saharan Africa can more than offset adverse effects of automation on convergence by realizing economy-wide productivity gains through improved infrastructure, education, access to finance, and business environment reforms.

### Policy implications and priorities
- Adapt development strategies to the demands and prospects of the Fourth Industrial Revolution, accounting for the possibility of reshoring and changing global value chains.
- Priorities to capture benefits and mitigate risks:
  - Invest in traditional and digital infrastructure to improve connectivity and enable technology adoption.
  - Reform and upgrade education systems to keep pace with changing skill requirements.
  - Promote smart urbanization to support agglomeration benefits and labor mobility.
  - Strengthen social safety nets to protect workers in a potentially more volatile labor market.
  - Pursue trade integration while helping firms meet global quality standards (which may require automation investments).
  - Improve overall productivity through policies targeting infrastructure, education, access to finance, and the business environment.

### Key statistics and exact figures preserved from the chapter
- Jobs needed: 20 million jobs per year needed over the next two decades to absorb the growing workforce.
- Working-age definition: 15–64 years.
- United Nations projection: net increase in the working-age population in sub-Saharan Africa of 20 million people on average over the next 20 years.
- Estimates for job losses from AI, machine learning and robots in advanced economies: range from 7 percent to 47 percent of the labor force.
- Historical data notes: labor shares in sub-Saharan Africa have remained stable since the 1950s, though many countries have seen declines since the 1980’s.
- Model data coverage note: some data based on 26 countries in sub-Saharan Africa from Penn World Tables 9.0 (as cited).

_Chapter prepared by Aidar Abdychev, Cristian Alonso, Emre Alper, Dominique Desruelle, Siddharth Kothari, Yun Liu, Mathilde Perinet, Sidra Rehman, Axel Schimmelpfennig, and Preya Sharma._

### 3. THE FUTURE OF WORK IN SUB-SAHARAN AFRICA

### 3. THE FUTURE OF WORK IN SUB-SAHARAN AFRICA

### Impact of the Fourth Industrial Revolution on exports
- Two export vulnerability indices are used to gauge how automation in advanced economies could affect sub-Saharan Africa’s exports. The indices are based on measures of the automatability of occupations from:
  - Frey and Osborne (2017)
  - Brynjolfsson, Mitchell, and Rock (2018)
- Method: indices are mapped to industries, and then to export goods to ascertain sectoral exposure to automation.
- Contrasting index results:
  - The Frey-Osborne–based index indicates that sub-Saharan Africa’s exports, and those of low-income and developing countries in general, are relatively more vulnerable to automation.
  - The Brynjolfsson, Mitchell, and Rock–based index shows the opposite: sub-Saharan Africa does not seem as vulnerable to automation.
- Explanation for divergence:
  - Frey and Osborne emphasize technologies that replace routine jobs widely found in low-end manufacturing (bulk of noncommodity exports such as food manufacturing).
  - Brynjolfsson, Mitchell, and Rock emphasize machine learning, which is more likely to replace nonroutine cognitive tasks used more intensively in advanced economies’ exports (for example, electronics and machinery).
- Key takeaway: inherent uncertainty in assessing technological impacts—outcomes depend on the pace of technological progress and whether technology complements or substitutes different types of labor.

### Scenario analysis and key uncertainties
- Role of scenario analysis:
  - Useful under “Knightian uncertainty” where attaching quantifiable probabilities is impossible.
  - Produces multiple plausible stories rather than a single point prediction.
  - Helps identify “future-proof” policies that perform well across scenarios and spot early warning signs.
- Approach: the Oxford Scenario Planning Approach (Ramírez and Wilkinson 2016) involving expert interviews and a facilitated workshop was used to develop scenarios.
- Three main uncertainties shaping the future of work over the next two decades:
  - The impact of technological change (automation, machine learning, artificial intelligence): Will technology substitute or complement human labor? What happens to exports if advanced economies reshore manufacturing with automation?
  - The course of global economic integration: Will globalization continue or will there be global economic disintegration and inward-looking policies that restrict market access?
  - The speed and severity of climate change: IMF estimates suggest higher temperatures in tropical low-income countries have a long-lasting impact, particularly through agricultural and manufacturing sectors, while services are impacted less (IMF 2017a). Questions include pace of adverse impacts, habitability of regions, and mitigation policies.
- Underlying trend/certainty:
  - Demographics: The region’s population is projected to nearly double in the next two decades, from approximately 900 million in 2015 to 1.7 billion in 2040.
  - Job creation requirement: As the labor force increases, there is a need to create 20 million jobs each year.

### Three scenarios (summarized speeches set in 2040)
- Scenario 1 — Africa Arisen
  - Technology complements humans, including many low-skilled workers.
  - Global economy remains integrated.
  - Technological advances mitigate climate impacts; entrepreneurs integrate firms into global value chains.
  - Outcomes: increased productivity, services-led trade growth, transformed agriculture with improved yields and processed food exports, an emerging vibrant middle class, but gig-economy job volatility and concentrated digital infrastructure.
- Scenario 2 — Africa for Africa
  - Automation displaces workers in advanced economies, triggering inward-looking policies and reversal of globalization.
  - Sub-Saharan Africa is less directly affected by automation due to low labor costs but faces climate drag on growth.
  - Governments implement the Continental Free Trade Agreement and invest in regional infrastructure, creating a common market of more than 1.7 billion people by 2040.
  - Outcomes: regional integration spurs entrepreneurship, self-sufficiency in food, growth of small-scale/customizable manufacturing (e.g., 3-D printing), but persistent poverty, high youth unemployment, informality, infrastructure bottlenecks, and constrained financing.
- Scenario 3 — Africa Adrift
  - Rapid automation leads to reshoring of manufacturing to advanced economies; climate change is worse and faster than expected.
  - Development strategies are thwarted; countries face stranded assets, high debt, low domestic revenues, and reduced external financing.
  - Outcomes: stagnation, dominance of informal subsistence agriculture and low-productivity services, severe urban and rural poverty, large migration pressures, rising crime and conflict, and limited access to quality education for most.

### What policies are needed to create future-proof jobs?
- Overarching message: maintain openness to alternative growth strategies and embrace Fourth Industrial Revolution opportunities; pursue policies that are robust across scenarios.
- Key policy area highlighted: Get Connected
  - Connectivity includes digital infrastructure in addition to traditional physical infrastructure (roads, railways, ports).
  - Digital infrastructure and a supportive business environment enable new business forms and increase efficiency, particularly in services (a growing share of economies).
  - Digital infrastructure is likely critical for boosting agricultural productivity and implementing climate mitigation strategies.
  - Given limited fiscal space, investments in capabilities to store and exchange data through accessible systems will require public–private partnerships.
  - Current constraint: internet penetration in sub-Saharan Africa is the lowest in the world—less than half the global average—although a few countries (Kenya, Nigeria, and Seychelles) have higher penetration.
- Additional policy themes implied across scenarios:
  - Invest in digital infrastructure and skills (including STEM and care economy skills).
  - Improve education quality and adapt curricula to technology-driven demands; expand online materials and means-tested social assistance where fiscal capacity allows.
  - Mobilize revenue to finance investment in connectivity, regional infrastructure, and social protection.
  - Support regional integration and the Continental Free Trade Agreement as a hedge if global integration weakens.
  - Pursue climate mitigation and adaptation measures to protect agricultural and manufacturing productivity.

*Italic: Regional Economic Outlook: Sub-Saharan Africa — Chapter 3 (sreo1018) — 3. THE FUTURE OF WORK IN SUB-SAHARAN AFRICA*

### 3. THE FUTURE OF WORK IN SUB-SAHARAN AFRICA

### 3. THE FUTURE OF WORK IN SUB-SAHARAN AFRICA

### Digital connectivity and internet access
- Proportion of individuals using the Internet, 2016 (Figure 3.7):
  - SSA: 20
  - World: 46
  - MENA: 48
  - EAP: 53
  - LAC: 57
  - EU: 81
  - Unit: Percent
- Broadband costs and affordability (summary of Figures 3.8 and text):
  - The cost of a fixed broadband connection is highest in sub-Saharan Africa compared to other regions.
  - Mobile broadband costs in US dollar terms are comparable to other regions.
  - Once scaled by gross national income, sub-Saharan Africa has the least affordable mobile broadband.
  - Source data referenced: ITU-ICT database.

### Invest in flexible education systems
- Skills emphasis and uncertainty:
  - Digital literacy, adaptability, and lifelong learning are identified as likely skills for success.
  - Secondary education will become more important.
  - There is considerable uncertainty over specific future skill requirements; education systems need to be flexible while ensuring full enrollment and introducing technology in every classroom.
- Enrollment outcomes (Figures 3.9 and 3.10):
  - Sub-Saharan Africa has made important gains in increasing primary completion rates but lags other regions on secondary education.
  - Secondary enrollment rates remain well below other regions.
  - Figures show primary net enrollment rate trends and secondary net enrollment rate trends for 1999–2014 (percent of population in relevant school-age groups).
  - Source data referenced: World Bank, World Development Indicators.

### Smart urbanization
- Urbanization and innovation:
  - Hotbeds of the Fourth Industrial Revolution are situated in cities or urban centers.
  - Many sub-Saharan African cities have insufficient infrastructure and are oriented more toward local consumer services, unlike cities in faster-growing economies that act as drivers of growth.
  - To enable entrepreneurs to drive technological adaptation and innovation, sub-Saharan Africa needs a strong focus on urban planning and development.
  - Population pressures increase the premium on having functioning cities.
  - Source cited: Gollin, Jedwab, and Vollrat 2015.

### Safety nets for a volatile labor market
- Labor market volatility and protection:
  - Frequent job transitions may characterize a “gig-style” world of work.
  - Many in sub-Saharan Africa, especially in the subsistence and informal sector, already experience frequent job transitions and income volatility.
  - Family and social networks provide some backup, but expanding safety nets that provide some income security is a major challenge.
  - Technology, such as biometric identification and fintech, can help with targeting and administration.
  - Revenue mobilization will be key to create the necessary fiscal space for expanded safety nets.

### Deepen trade integration
- Regional integration and market scale:
  - Further regional trade integration would be a driver of development, especially if the global environment becomes less conducive.
  - The recently agreed Continental Free Trade Agreement requires regionwide implementation to realize benefits.
  - Sub-Saharan Africa constitutes a sizable domestic market if countries move swiftly on trade facilitation and regional infrastructure, providing scale for local firms and attracting foreign direct investment.
- Exports of goods to different regions, 2017 (Figure 3.11):
  - Percent of exports of goods to the world (values shown in figure): 21, 56, 55, 18, 70
  - Labels shown in source figure: SSA Asia America's MENA Europe; and Intra-region SSA Asia America's MENA Europe
  - Trade integration in sub-Saharan Africa has almost tripled since the 1980s but remains low compared to other regions.
  - Physical distances and socioeconomic differences—including language and colonial history—are important barriers to trade in sub-Saharan Africa.
  - Source data referenced: Direction of Trade Statistics (DOTS).

### Conclusion: policy priorities and job targets
- Overarching policy challenge:
  - Support the new and emerging sectors that drive growth.
- Job creation target:
  - If successful, sub-Saharan Africa can create the required 20 million good-quality jobs per year for its young and growing population and make progress toward meeting the Sustainable Development Goals.
- Key policy pillars for adapting to the Fourth Industrial Revolution:
  - Integration and connectivity (traditional and digital infrastructure)
  - An education system that keeps pace with changing skill requirements
  - Smart urbanization
  - Safety nets for a volatile labor market
  - Trade integration

*International Monetary Fund. Regional Economic Outlook: Sub-Saharan Africa — Chapter 3.*

### REFERENCES

### sreo1018 - REFERENCES

### Note and data coverage
- IMF staff estimates as of September 20, 2018, consistent with the projections underlying the October 2018 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; in some cases, data limitations limit comparability across countries.
- An annex with additional figures and results for this chapter is available online.

### Country groupings and classification criteria
- Countries are aggregated into three non-overlapping groups:
  - Oil exporters: countries where net oil exports make up 30 percent or more of total exports.
  - Other resource-intensive countries: countries where non-renewable natural resources represent 25 percent or more of total exports.
  - Non-resource-intensive countries: not classified as either oil exporters or other resource-intensive countries.
- Countries are also aggregated into four overlapping groups: oil exporters, middle-income, low-income, and countries in fragile situations.
  - Middle-income countries: had per capita gross national income in the years 2015–17 of more than US$995.00 (World Bank, Atlas method).
  - Low-income countries: had average per capita gross national income in the years 2015–17 equal to or lower than US$995.00 (World Bank, Atlas method).
  - Countries in fragile situations: had average CPIA scores of 3.2 or less in the years 2015–17 and/or had the presence of a peacekeeping or peacebuilding mission within the last three years.
- Membership of sub-Saharan African countries in major regional cooperation bodies is reported (CFA franc zone: WAEMU and CEMAC; COMESA; EAC-5; ECOWAS; SADC; SACU). EAC-5 aggregates include data for Rwanda and Burundi, which joined the group only in 2007.

### Methods of aggregation (by Appendix table)
- Tables SA1 and SA5:
  - Country group composites are calculated as the arithmetic average of data for individual countries, weighted by GDP valued at purchasing power parity as a share of total group GDP.
  - Source of purchasing power parity weights: World Economic Outlook (WEO) database.
- Table SA2:
  - Country group composites are calculated as the geometric average of data for individual countries, weighted by GDP valued at purchasing power parity as a share of total group GDP.
  - Source of purchasing power parity weights: WEO database.
- Tables SA3–SA4 and SA6–SA8:
  - Country group composites are calculated as the arithmetic average of data for individual countries, weighted by GDP in US dollars at market exchange rates as a share of total group GDP.

### Statistical Appendix: tables and contents
- List of Appendix Tables SA1—SA8:
  - SA1. Real GDP Growth (Percent)
  - SA2. Consumer Prices (Annual average, percent change)
  - SA3. Overall Fiscal Balance, Including Grants (Percent of GDP)
  - SA4. Government Debt (Percent of GDP)
  - SA5. Broad Money (Percent of GDP)
  - SA6. External Current Account (Percent of GDP)
  - SA7. External Debt, Official Debt, Debtor Based (Percent of GDP)
  - SA8. Reserves (Months of imports of goods and services)
- Notes and footnotes for appendix tables:
  - “1” Including grants (where indicated).
  - “2” Fiscal year data (where indicated).
  - “3” In constant 2009 US dollars; Zimbabwe dollar ceased circulating in early 2009; data are based on IMF staff estimates of price and exchange rate developments in US dollars; staff estimates of US dollar values may differ from authorities’ estimates.
  - Note: “...” denotes data not available.
- Source citations for appendix tables:
  - Table SA6 source: IMF, World Economic Outlook database, October 2018.
  - Table SA7 sources: IMF, Common Surveillance database, and IMF, World Economic Outlook database, October 2018.
  - Tables SA1, SA3–SA5, SA8 source: IMF, Common Surveillance database and IMF, World Economic Outlook database, October 2018.
  - Table SA2 sources: IMF, World Economic Outlook database, October 2018.

### Country group membership (selected reporting elements)
- The document lists membership of sub-Saharan African countries in regional groupings (WAEMU, CEMAC, COMESA, EAC-5, SADC, SACU, ECOWAS) and classifies countries as Oil exporters, Other resource-intensive countries, Non-resource-intensive countries, Middle-income countries, Low-income countries, and Countries in fragile situations.
- Classification thresholds reiterated:
  - Oil exporters threshold: 30 percent or more of total exports from net oil exports.
  - Other resource-intensive threshold: 25 percent or more of total exports from non-renewable natural resources.
  - Middle-income threshold: more than US$995.00 (2015–17 average, Atlas method).
  - Low-income threshold: equal to or lower than US$995.00 (2015–17 average, Atlas method).
  - Fragile situations: CPIA score of 3.2 or less (2015–17 average) and/or recent peacekeeping/peacebuilding mission presence.

*Italic: Regional Economic Outlook: Sub‑Saharan Africa — References and Statistical Appendix (IMF staff estimates and methodological notes, as of September 20, 2018).*

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_Source: https://www.imf.org/-/media/files/publications/reo/afr/2018/october/pdf/sreo1018.pdf_