## ch1 - 3.6 percent in 2020. Growth is forecast to be slower

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### Macroeconomic developments and outlook
- Regional growth projections:
  - Growth for the region is projected at 3.2 percent in 2019 and rise to 3.6 percent in 2020.
  - Global growth is expected to rise from 3.0 percent in 2019 to 3.4 percent in 2020; over the medium term, global growth is projected at 3.6 percent.
- Revisions and heterogeneity:
  - Projected growth rates are lower than envisaged in April, by 0.3 percentage point and 0.1 percentage point for 2019 and 2020, respectively.
  - Growth has been revised down in about two-thirds of the countries in the region.
  - Growth prospects vary considerably across countries:
    - Non-resource-intensive countries: 6 percent in 2019.
    - Oil exporters: 2.1 percent in 2019.
    - Other resource-intensive countries: 2.7 percent in 2019.
  - Per capita income consequences:
    - 24 countries, home to about 500 million people, will see their per capita income rise faster than the rest of the world.
    - 21 countries are projected to have per capita growth lower than the world average.
- Country illustrations:
  - Nigeria: projected to grow at 2.5 percent in 2020, up from 2.3 percent in 2019; medium-term growth projected at slightly higher than 2.5 percent.
  - South Africa: projected to increase from 0.7 percent in 2019 to 1.1 percent in 2020; medium-term growth projected to be slightly lower than 2 percent.
- Inflation, debt, and buffers:
  - Inflation expected to ease going forward.
  - Average sub-Saharan African-wide debt burden is stabilizing, but elevated public debt vulnerabilities and low external buffers will continue to limit policy space in several countries.

### External and regional risks
- Global external risks and commodity effects:
  - Intensified external headwinds since April include the threat of rising protectionism, a sharp increase in risk premiums or reversal in capital inflows owing to tightening global financial conditions, and a faster-than-anticipated slowdown in China and in the euro area.
  - Commodity prices are set to fall; subdued global growth is expected to weigh on the region’s exports and most commodity prices except metals prices.
  - Downside risk to commodity prices: higher-than-expected shale oil production in the United States.
  - Upside risk to commodity prices: potential further supply disruptions in major oil-producing countries such as Iran and Venezuela.
- Regional shocks and events:
  - Weather and natural disasters:
    - Severe droughts caused by El Niño affected Angola, Botswana, Ethiopia, Kenya, Lesotho, Namibia, Zambia, and Zimbabwe.
    - Cyclones Idai and Kenneth caused more than US$2 billion in damages.
  - Health shocks:
    - Ebola outbreak in the Democratic Republic of the Congo: about 3,000 cases reported as of September 2019, of which more than 2,000 were fatal; spread to Goma prompted WHO declaration of a “public health emergency of international concern.”
    - Burundi: malaria outbreak infected nearly half the population, killing about 1,800 people as of July 2019.
  - Security:
    - Reported terrorism incidents in Sahel countries rose by 75 percent in 2019 (annualized based on January through September).
    - Burkina Faso, Mali, and Niger were the most affected.
    - Military and security spending doubled in 2019 in Burkina Faso, Mali, and Niger, representing about 4 percent of GDP and absorbing 20 percent of fiscal revenues.
- Financial conditions and capital flows:
  - Global financial conditions have eased since early 2019 as major central banks shifted toward greater monetary accommodation.
  - Issuances of international sovereign bonds by the region’s frontier markets exceeded US$10.5 billion so far in 2019.

### Balance-sheet vulnerabilities and transmission channels
- Domestic fiscal constraints and commodity dependence:
  - Elevated public debt vulnerabilities and low external buffers constrain policy space in several countries.
  - Fiscal consolidation is expected to hold back growth momentum in many countries.
  - Soft commodity prices, particularly oil, benefit commodity importers’ fiscal and external positions but provide headwinds to commodity exporters.
  - Commodity exporters host about two-thirds of the region’s population; soft commodity prices typically mean slower growth and weaker fundamentals for the region.
- Structural and country-specific constraints:
  - South Africa: high cost of doing business, inflexible product and labor markets, and low public enterprise efficiency restrain business confidence and private investment.
  - Nigeria: low growth driven by insufficient policy adjustment, a large infrastructure gap, low private investment, and banking sector vulnerabilities.

### NAVIGATING UNCERTAINTY — Growth outlook, inflation, and fiscal balance
- Growth outlook:
  - Ethiopia expected to grow by 7.2 percent in 2020, slightly below the 7.4 percent rate projected for 2019; medium-term growth expected to ease to about 6.5 percent.
  - Non-resource-intensive countries expected to grow rapidly at about 5½ percent (excluding Ethiopia) in 2020.
  - Over the medium term, region projected to grow close to 4 percent, or about 1½ percent in per capita terms.
  - Excluding Nigeria and South Africa, medium-term growth would be somewhat higher at above 5 percent.
  - Bifurcation persists: non-resource-intensive countries forecast about 6 percent growth; resource-intensive countries about 3 percent.
  - In per capita terms, 21 out of 45 countries would have per capita growth lower than the world average; 12 countries (representing about one-third of the region’s population) are expected to have negative per capita growth in 2019.
- Inflation:
  - Average inflation: 8.5 percent in 2018; 8.4 percent in 2019; 8.0 percent in 2020.
  - Inflation likely to rise in countries with conflicts, large depreciations (Angola, Liberia), droughts (Kenya, Lesotho, Namibia, Zambia, Zimbabwe), or larger fiscal deficits.
  - Inflation expected to remain low in WAEMU and CEMAC; some WAEMU countries likely to experience deflation.
- Public debt and fiscal vulnerabilities:
  - Regional public debt ratio stabilized at about 55 percent on average across countries.
  - Oil exporters’ debt ratios have fallen by about 10 percentage points of GDP since 2016.
  - Reduction in the noncommodity primary fiscal deficit of nearly 14 percentage points of GDP during 2013–18 was achieved largely by cutting public investment and, to a lesser degree, current primary expenditure, while noncommodity revenue fell slightly.
  - Debt distress status among low-income and developing countries:
    - Seven countries (accounting for 3 percent of regional GDP) are in debt distress: Eritrea, The Gambia, Mozambique, Republic of Congo, São Tomé and Príncipe, South Sudan, Zimbabwe.
    - Nine countries (accounting for 16 percent of regional GDP) are at high risk of debt distress: Burundi, Cabo Verde, Cameroon, Central African Republic, Chad, Ethiopia, Ghana, Sierra Leone, Zambia.
    - Remaining 19 low-income and developing countries have low to moderate debt vulnerabilities.
  - For middle- and upper-income countries, public debt remains sustainable under the baseline in most cases.
  - Composition of public debt (2000–17): more than half from domestic creditors; about 15 percent from Eurobonds; official bilateral and multilateral debt accounted for only about a quarter of total public debt in 2017.
  - Greater reliance on commercial public debt raises rollover and exchange rate risks and could crowd out private sector financing.
- External buffers and current account:
  - Simple average current account deficit expected to widen from 6.2 percent of GDP in 2018 to about 7.2 percent of GDP in 2019.
  - At end-2019, foreign exchange reserves expected to remain between 3 and 4 months of imports, with wide differences across countries.
  - Estimated pass-through of exchange rate changes to inflation: about 40 percent.
  - Under current policies, only a small decline in current account deficits is expected; reserves expected to remain low.

### Banking sector and reserve vulnerabilities
- Banking sector:
  - Elevated balance sheet vulnerabilities: high public debt ratios, limited repayment capacity, low foreign exchange reserves, weaknesses in financial and nonfinancial corporate balance sheets.
  - Nonperforming loan (NPL) ratios remain elevated, averaging 11 percent.
  - Accumulation of domestic arrears has hampered suppliers’ ability to service liabilities to banks.
  - Banks’ capital ratios are high on average (21 percent in Q3 2018), but with significant cross-country and cross-bank variation; some banks remain undercapitalized.
  - Other concerns: foreign currency liquidity mismatches (Angola), high loan concentration (Benin, Eswatini, Lesotho, Malawi), increased household and corporate debt (Namibia).
- Reserve adequacy:
  - Projected reserves at end-2019 generally between 3 and 4 months of imports; many countries below adequate levels per reserve adequacy methodology.
  - Large share of foreign currency–denominated public debt in frontier market economies increases exchange rate and refinancing risks (median foreign currency share in total debt, frontier market economies, 2010–19: shown rising in figure).

### Risks to the outlook (scenarios and channels)
- Near-term external risks:
  - Rising protectionism.
  - A sharp rise in risk premiums.
  - Faster-than-anticipated slowdown in China and in the euro area.
- Near-term domestic risks:
  - Climate shocks.
  - Intensification of security challenges.
  - Further spread of the Ebola outbreak in the Democratic Republic of the Congo to neighboring countries.
  - Fiscal slippages, including ahead of elections, and lack of reform in key countries.
- Specific scenario impacts:
  - China and euro area account for about 20 percent and 30 percent of total trade, respectively; a combined adverse external shock scenario could reduce region’s growth by about 1 percent in the initial year and by about ½ percent in the next year.
- Natural disasters and health:
  - Flood frequency rose sixfold from the 1980s to the 2000s in sub-Saharan Africa.
  - Expected El Niño in early 2020 raises flooding and drought risks.
  - Spread of Ebola in the DRC to large cities and neighboring countries could undermine confidence, investment, and trade.

### Policy priorities and recommendations (three-pronged strategy)
- Carefully calibrate the near-term policy mix:
  - Room for supporting growth remains mainly on the monetary policy side and is restricted to countries where inflation pressures are muted and growth is below potential.
  - If downside risks materialize, fiscal and monetary policy could be carefully recalibrated to support growth in a manner consistent with debt sustainability and available financing, and as part of a credible medium-term adjustment plan.
  - In slowly growing countries, the pace of adjustment could be more gradual, provided financing is available, or its composition fine-tuned to minimize the impact on growth.
  - In fast-growing countries facing elevated debt vulnerabilities, the priority remains rebuilding buffers.
- Build resilience:
  - Mobilize domestic revenue, streamline inefficient subsidies, and improve public financial management to strengthen sovereign balance sheets and create fiscal space for development needs.
  - Promote economic diversification, improve macroeconomic policy frameworks, and reduce nonperforming loans (NPLs) to reduce vulnerability to shocks.
- Raise medium-term growth:
  - Raise per capita growth rates, especially for resource-intensive countries, to sustain improved social outcomes and create jobs for the 20 million (net) new entrants poised to join labor markets every year.
  - Comprehensively tackle tariff and nontariff barriers in the context of the AfCFTA, develop regional value chains, and implement reforms to boost investment and competitiveness.

### Policy instruments and institutional reforms
- Revenue mobilization:
  - Since 2016, revenue in the region has risen by only 0.2 percent of GDP a year on average.
  - Countries have room to mobilize, on average, between 3 percent and 5 percent of GDP in revenue.
  - Recommended actions: improve tax administration, broaden revenue bases through fewer exemptions.
- Subsidy reform:
  - Subsidies and other transfers averaged more than 5 percent of GDP (or 25 percent of expenses) as of 2017 for countries with available data.
  - Successful reform elements: comprehensive plan, communication strategy, phased energy price increases, SOE efficiency improvements, targeted protection for the poor, institutional reforms to depoliticize energy pricing.
- Public financial management and debt frameworks:
  - Actions needed: monitor and clear domestic arrears; enhance medium-term expenditure frameworks; treasury single accounts; performance-based budgeting; enforce internal controls; improve capital project selection and reduce SOE and PPP risks.
  - Debt management: debt buybacks and reprofiling, align repayment currency with foreign exchange earnings, use multitranche Eurobond issuances, develop credible medium-term fiscal frameworks with fiscal rules.
- External sector and monetary policy:
  - Foster economic diversification, promote exchange rate flexibility where appropriate, manage capital flows with countervailing macroeconomic and macroprudential policies, and attract FDI.
  - Improve monetary transmission: mop up excess liquidity, develop interbank and secondary markets, establish repo transactions, guide short-term market rates using interest rate corridors, reduce fiscal dominance, set medium-term inflation objectives, ensure central bank operational independence.
- Banking sector repair:
  - Reduce NPLs via write-offs, asset management companies, clearing domestic arrears, restructuring or resolving failing banks, and facilitating foreclosure or out-of-court settlements.
  - Strengthen macroprudential and microprudential policies to improve resilience.

### Building resilience to climate shocks, financial stability, and long-term growth
- Climate and disaster resilience:
  - Structural measures: drought‑resistant crop varieties, rainwater harvesting, mobile forecasting and insurance, relocation from flood-prone areas, diversify energy generation away from hydropower.
  - Financial measures: create fiscal buffers, use prearranged financial instruments, regional sovereign insurance (African Risk Capacity).
  - Contingency planning: expand access to finance and insurance, enhance social safety nets, improve public health systems.
- Financial stability and macroprudential policy:
  - Macroprudential toolkits remain limited: average of five measures available at end-2016.
  - Common tools: restrictions on banks’ foreign exchange positions, reserve requirements, capital requirements.
  - Since 2017, some countries adopted higher capital requirements (Angola, Ghana, Mozambique, Tanzania).
  - Recommended actions: improve cross-country supervisory collaboration, harmonize regulations and supervisory procedures, establish resolution mechanisms for unviable cross-border institutions.
  - Address correspondent banking challenges by strengthening AML/CFT frameworks.
- Long-term growth and integration:
  - Promote regional and global integration, develop value chains, tackle tariff and nontariff barriers, improve trade logistics, and connect cross-border payment systems.
  - Promote competitiveness through competition policy, opening sectors to trade and FDI, cutting red tape, and strengthening institutions.
  - Harness the Fourth Industrial Revolution: build digital infrastructure, adapt education systems, and promote smart urbanization.
  - Ensure inclusiveness: more progressive taxation, replace regressive expenditures like fuel subsidies with targeted social safety nets, promote gender equality, expand health and education, and deepen financial inclusion.

*Regional Economic Outlook: Sub‑Saharan Africa — Chapter 1*

### 3.6 percent in 2020. Growth is forecast to be slower

### ch1 - 3.6 percent in 2020. Growth is forecast to be slower

### Macroeconomic developments and outlook
- Regional growth projections:
  - Growth for the region is projected at 3.2 percent in 2019 and rise to 3.6 percent in 2020.
  - Global growth is expected to rise from 3.0 percent in 2019 to 3.4 percent in 2020; over the medium term, global growth is projected at 3.6 percent.
- Revisions and heterogeneity:
  - The projected growth rates are lower than envisaged in April, by 0.3 percentage point and 0.1 percentage point for 2019 and 2020, respectively.
  - Growth has been revised down in about two-thirds of the countries in the region.
  - Growth prospects vary considerably across countries:
    - Non-resource-intensive countries: 6 percent in 2019 (nearly three times faster than oil exporters and other resource-intensive countries).
    - Oil exporters: 2.1 percent (2019).
    - Other resource-intensive countries: 2.7 percent (2019).
  - Consequences for per capita income:
    - 24 countries, home to about 500 million people, will see their per capita income rise faster than the rest of the world.
    - 21 countries are projected to have per capita growth lower than the world average.
- Country illustrations:
  - Nigeria: projected to grow at 2.5 percent in 2020, up from 2.3 percent in 2019; medium-term growth projected at slightly higher than 2.5 percent.
  - South Africa: projected to increase from 0.7 percent in 2019 to 1.1 percent in 2020; medium-term growth projected to be slightly lower than 2 percent.
- Inflation, debt, and buffers:
  - Inflation is expected to ease going forward.
  - The average sub-Saharan African-wide debt burden is stabilizing, but elevated public debt vulnerabilities and low external buffers will continue to limit policy space in several countries.

### External and regional risks
- Global external risks:
  - Intensified external headwinds since April include the threat of rising protectionism, a sharp increase in risk premiums or reversal in capital inflows owing to tightening global financial conditions, and a faster-than-anticipated slowdown in China and in the euro area.
  - Commodity prices are set to fall; subdued global growth is expected to weigh on the region’s exports and most commodity prices except metals prices.
  - Downside risk to commodity prices: higher-than-expected shale oil production in the United States.
  - Upside risk to commodity prices: potential further supply disruptions in major oil-producing countries such as Iran and Venezuela.
- Regional shocks and events:
  - Weather and natural disasters:
    - Severe droughts caused by El Niño affected Angola, Botswana, Ethiopia, Kenya, Lesotho, Namibia, Zambia, and Zimbabwe.
    - Cyclones Idai and Kenneth caused more than US$2 billion in damages.
  - Health shocks:
    - Ebola outbreak in the Democratic Republic of the Congo: about 3,000 cases reported as of September 2019, of which more than 2,000 were fatal; spread to Goma prompted WHO declaration of a “public health emergency of international concern.”
    - Burundi: malaria outbreak infected nearly half the population, killing about 1,800 people as of July 2019.
  - Security:
    - Reported terrorism incidents in Sahel countries rose by 75 percent in 2019 (annualized based on January through September).
    - Burkina Faso, Mali, and Niger were the most affected.
    - Military and security spending doubled in 2019 in Burkina Faso, Mali, and Niger, representing about 4 percent of GDP and absorbing 20 percent of fiscal revenues.
- Financial conditions and capital flows:
  - Global financial conditions have eased since early 2019 as major central banks shifted toward greater monetary accommodation.
  - Issuances of international sovereign bonds by the region’s frontier markets exceeded US$10.5 billion so far in 2019.

### Balance-sheet vulnerabilities and transmission channels
- Domestic fiscal constraints:
  - Elevated public debt vulnerabilities and low external buffers constrain policy space in several countries.
  - Fiscal consolidation is expected to hold back growth momentum in many countries.
- Commodity-dependence effects:
  - Soft commodity prices, particularly oil, are mixed in effects: benefit commodity importers’ fiscal and external positions but provide headwinds to commodity exporters.
  - Commodity exporters host about two-thirds of the region’s population; soft commodity prices typically mean slower growth and weaker fundamentals for the region.
- Structural and country-specific constraints:
  - South Africa: structural constraints include high cost of doing business, inflexible product and labor markets, and low public enterprise efficiency, restraining business confidence and private investment.
  - Nigeria: low growth is driven by insufficient policy adjustment, a large infrastructure gap, low private investment, and banking sector vulnerabilities.

### Policy priorities and recommendations (three-pronged strategy)
- Carefully calibrate the near-term policy mix:
  - With limited buffers and elevated debt vulnerabilities, room to counter external headwinds is constrained.
  - The room for supporting growth remains mainly on the monetary policy side and is restricted to countries where inflation pressures are muted and growth is below potential.
  - If downside risks materialize, fiscal and monetary policy could be carefully recalibrated to support growth in a manner consistent with debt sustainability and available financing, and as part of a credible medium-term adjustment plan.
  - In slowly growing countries, the pace of adjustment could be more gradual, provided financing is available, or its composition fine-tuned to minimize the impact on growth.
  - In fast-growing countries facing elevated debt vulnerabilities, the priority remains rebuilding buffers.
- Build resilience:
  - Mobilize domestic revenue, streamline inefficient subsidies, and improve public financial management to strengthen sovereign balance sheets and create fiscal space for development needs.
  - Promote economic diversification, improve macroeconomic policy frameworks, and reduce nonperforming loans (NPLs) to reduce vulnerability to shocks.
- Raise medium-term growth:
  - Raise per capita growth rates, especially for resource-intensive countries, to sustain improved social outcomes and create jobs for the 20 million (net) new entrants poised to join labor markets every year.
  - Comprehensively tackle tariff and nontariff barriers in the context of the AfCFTA, develop regional value chains, and implement reforms to boost investment and competitiveness.

*Regional Economic Outlook: Sub‑Saharan Africa — Chapter 1*

### 1. NAVIGATING UNCERTAINTY

### 1. NAVIGATING UNCERTAINTY

### Growth outlook
- Ethiopia is expected to grow by 7.2 percent in 2020, slightly below the 7.4 percent rate projected for 2019.
- Growth in Ethiopia is expected to ease over the medium term to about 6.5 percent reflecting efforts to address large external imbalances through fiscal and monetary policy tightening.
- Sluggish growth in Nigeria and South Africa is likely to limit positive spillovers to their trading partners (remittances, financial sector activity, and import demand).
- Non-resource-intensive countries are expected to continue to grow rapidly at about 5½ percent (excluding Ethiopia) in 2020.
- Over the medium term, growth in the region is projected to be close to 4 percent, or about 1½ percent in per capita terms.
- Excluding Nigeria and South Africa, medium-term growth would be somewhat higher at above 5 percent.
- Bifurcation persists: non-resource-intensive countries forecast about 6 percent growth; resource-intensive countries about 3 percent.
- In per capita terms, 21 out of 45 countries would have per capita growth lower than the world average; 12 countries (representing about one-third of the region’s population) are expected to have negative per capita growth in 2019.
- 24 countries, mostly non-resource-intensive and home to about 500 million people, will see per capita income rise faster than the rest of the world.
- Services (communication, wholesale, retail, financial services) and construction have grown on average by more than 5 percent a year during 2013–17 and are expected to continue driving growth.

### Inflation
- Average inflation in the region: 8.5 percent in 2018; 8.4 percent in 2019; 8.0 percent in 2020.
- Inflation likely to rise in countries with conflicts, large depreciations (Angola, Liberia), droughts (Kenya, Lesotho, Namibia, Zambia, Zimbabwe), or larger fiscal deficits.
- Inflation expected to remain low in monetary unions (WAEMU and CEMAC); some WAEMU countries are likely to experience deflation.

### Public debt and fiscal vulnerabilities
- Regional public debt ratio has stabilized at about 55 percent on average across countries.
- Oil exporters’ debt ratios have fallen by about 10 percentage points of GDP since 2016.
- The reduction in the noncommodity primary fiscal deficit of nearly 14 percentage points of GDP during 2013–18 was achieved largely by cutting public investment and, to a lesser degree, current primary expenditure, while noncommodity revenue fell slightly.
- Among low-income and developing sub-Saharan African countries:
  - Seven countries (accounting for 3 percent of regional GDP) are in debt distress: Eritrea, The Gambia, Mozambique, Republic of Congo, São Tomé and Príncipe, South Sudan, Zimbabwe.
  - Nine countries (accounting for 16 percent of regional GDP) are at high risk of debt distress: Burundi, Cabo Verde, Cameroon, Central African Republic, Chad, Ethiopia, Ghana, Sierra Leone, Zambia.
  - The remaining 19 low-income and developing countries have low to moderate debt vulnerabilities.
- For middle- and upper-income countries, public debt remains sustainable under the baseline in most cases.
- Composition of public debt (2000–17): more than half from domestic creditors; about 15 percent from Eurobonds; official bilateral and multilateral debt accounted for only about a quarter of total public debt in 2017.
- Greater reliance on commercial public debt raises rollover and exchange rate risks and could crowd out private sector financing.

### External buffers and current account
- Simple average current account deficit expected to widen from 6.2 percent of GDP in 2018 to about 7.2 percent of GDP in 2019.
- At end-2019, foreign exchange reserves are expected to remain between 3 and 4 months of imports, with wide differences across countries.
- Large external imbalances emerged in oil exporters after the 2014–15 oil price decline; current account deficits narrowed to about 1 percent of GDP on average in 2018 as fiscal consolidation and terms-of-trade improvements compressed domestic demand.
- The current account adjustment largely occurred through demand compression rather than reallocation toward export-oriented sectors; exchange rates and relative prices played little role in many countries.
- Estimated pass-through of exchange rate changes to inflation: about 40 percent.
- Under current policies, only a small decline in current account deficits is expected; reserves expected to remain low, leaving several countries exposed to terms-of-trade shocks.

### Banking sector and balance-sheet vulnerabilities
- Elevated balance sheet vulnerabilities limit macro policy room: high public debt ratios, limited repayment capacity, low foreign exchange reserves, and weaknesses in financial and nonfinancial corporate balance sheets.
- Nonperforming loan (NPL) ratios remain elevated, averaging 11 percent.
- Accumulation of domestic arrears has hampered suppliers’ ability to service liabilities to banks.
- High NPLs, public borrowing, and regulatory changes have contributed to slowing private sector credit growth; credit growth remains well below its long-term average (close to 10 percent during 2006–19).
- Banks’ capital ratios are high on average (21 percent in Q3 2018), but with significant cross-country and cross-bank variation; some banks remain undercapitalized.
- Other banking concerns: foreign currency liquidity mismatches (Angola), high loan concentration (Benin, Eswatini, Lesotho, Malawi), increased household and corporate debt (Namibia).

### Reserve adequacy and vulnerabilities
- Projected level of reserves at end-2019 in months of imports: for the region generally between 3 and 4 months, with oil exporters, other resource-intensive, and non-resource-intensive groups differing; many countries below adequate levels per reserve adequacy methodology.
- Large share of foreign currency-denominated public debt in frontier market economies increases exchange rate and refinancing risks (median foreign currency share in total debt, frontier market economies, 2010–19: shown rising in figure).

### Risks to the outlook
- Near-term external risks:
  - Rising protectionism.
  - A sharp rise in risk premiums.
  - Faster-than-anticipated slowdown in China and in the euro area.
- Near-term domestic risks:
  - Climate shocks.
  - Intensification of security challenges.
  - Further spread of the Ebola outbreak in the Democratic Republic of the Congo to neighboring countries.
  - Fiscal slippages, including ahead of elections, and lack of reform in key countries.
- Elections noted: presidential elections scheduled in 2019 in Botswana, Guinea-Bissau, Mozambique, Namibia; 2020 elections in Burkina Faso, Burundi, Central African Republic, Comoros, Côte d’Ivoire, Ethiopia, Ghana, Guinea, Seychelles, Tanzania, Togo.
- Rising protectionism: additional trade and technology barriers would reduce global growth, lower commodity prices, and negatively affect resource-intensive countries; current trade tensions have already taken a toll on the region’s export growth (Figure 1.18).
- Sharp rise in risk premiums: could lead to sudden stop or reversal of portfolio flows, higher public debt service costs, depreciation pressures, weaker bank balance sheets; many frontier economies have large shares of foreign currency-denominated public debt.
- Faster slowdown in China or euro area: China and euro area account for about 20 percent and 30 percent of total trade, respectively; a combined adverse external shock scenario could reduce region’s growth by about 1 percent in the initial year and by about ½ percent in the next year.
- Natural disasters: frequency and intensity have increased over past 30 years; floods frequency rose sixfold from the 1980s to the 2000s in sub-Saharan Africa; expected El Niño in early 2020 raises flooding and drought risks; heavy reliance on rain-fed agriculture increases vulnerability.
- Public health shock: spread of the Ebola outbreak in the DRC to large cities and neighboring countries could undermine confidence, investment, and trade.

### Policies and development challenges
- Meeting the 2030 UN Sustainable Development Goals (SDGs) requires additional resources estimated at 15 percent of GDP on average a year from public and private sectors and multilateral and bilateral official sources.
- Job creation challenge: about 20 million (net) new entrants poised to join labor markets every year through 2030, twice the annual job creation during 2017–19.
- Importance of advancing reforms to promote growth and job creation; failure could reverse macro stability gains and stall development progress, with spillovers including via migration.
- Near-term policy mix:
  - Policymakers have limited options amid constrained buffers and elevated debt vulnerabilities.
  - Most countries have appropriately continued to tighten fiscal policy to address vulnerabilities.
  - Several countries have loosened monetary policy in 2019 (policy interest rate reductions noted in Angola, Botswana, Democratic Republic of the Congo, Eswatini, The Gambia, Ghana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Rwanda, South Africa).

*Source: ch1 - 1. NAVIGATING UNCERTAINTY (Regional Economic Outlook: Sub‑Saharan Africa).*

### 1. NAVIGATING UNCERTAINTY

### 1. NAVIGATING UNCERTAINTY

### Outlook for Policy Space and Short-Term Response
- Room for supporting growth remains mainly on the monetary policy side and limited to countries where inflation pressures are muted and growth is below potential.
- If downside risks materialize, fiscal and monetary policy could be recalibrated to support growth, in a manner consistent with debt sustainability and available financing, and as part of a credible medium-term adjustment plan.
- In countries growing slowly, the pace of adjustment could be made more gradual, provided financing is available; if not, they should design the composition of adjustment to minimize the impact on growth.
- In fast-growing countries facing elevated debt vulnerabilities, the priority remains rebuilding buffers.
- With the signing by Benin and Nigeria in July 2019, nearly all African countries have signed the agreement. As of September 2019, 27 countries have ratified the AfCFTA. The AfCFTA is expected to establish a single unified market of 1.2 billion people with a combined GDP of $2.5 trillion. Full operationalization still requires agreement on rules of origin, schedule of tariff concessions, monitoring and elimination mechanism on nontariff barriers, and digital payment and settlement platforms.

### Medium-Term Policies to Build Resilience and Raise Longer-Term Growth
- The reform spurt of the 1990s enabled sustained positive real GDP growth; time has come for a new wave of reforms to lift medium-term growth, create jobs, and make progress toward the SDGs.
- Priorities include reducing debt vulnerabilities, improving flexibility of the economy, upgrading macroeconomic policy frameworks, repairing balance sheets, building resilience to natural disasters, and improving political and governance institutions.
- Prioritization and sequencing will vary with country circumstances and implementation capacity.

### Building Resilience — Reducing Public Debt Vulnerabilities
- Improving debt dynamics requires further fiscal consolidation over the medium term to reduce debt vulnerabilities and create fiscal space for development needs.
- Interest-growth differentials are negative for most countries and average –6 percent; these ease budget constraints but are not enough to prevent growing debt.
- To keep debt dynamics in check, primary deficits also need to be contained.
- Oil exporters would need to continue to adhere to their plans of reducing noncommodity primary fiscal deficits by about 3 percentage points of GDP.
- Other resource-intensive countries and non-resource-intensive countries would need to implement planned reductions in noncommodity primary fiscal deficits of about 1½ percentage points and 1 percentage point of GDP, respectively.

### Advancing Domestic Revenue Mobilization
- Since 2016, revenue in the region has risen by only 0.2 percent of GDP a year on average.
- Countries have room to mobilize, on average, between 3 percent and 5 percent of GDP in revenue.
- Constraints identified: low tax rates (Angola, Nigeria), narrow tax bases (Ethiopia, Nigeria, Republic of Congo, São Tomé and Príncipe), broad exemptions (Angola, Cameroon, Chad, Côte d’Ivoire, Ethiopia, Nigeria), incomplete adoption/implementation of reforms (Equatorial Guinea; Gabon, Niger, Senegal, São Tomé and Príncipe), weak tax administrative capacities, governance concerns, large informal sectors (including Angola, Central African Republic, Chad, Guinea, Nigeria), and security-related tax collection challenges (Burkina Faso, Mali).
- Policy actions recommended:
  - Improve tax administration (assign tax identification numbers for commercial importers; improve land registries; strengthen tax audit functions, customs administration, and compliance management of large taxpayers).
  - Broaden revenue bases through fewer exemptions.

### Streamlining Inefficient Subsidies
- Subsidies and other transfers averaged more than 5 percent of GDP (or 25 percent of expenses) as of 2017 for countries with available data.
- Fuel subsidies tend to be poorly targeted, foster overconsumption, curtail investment and maintenance in related sectors, and crowd out more productive government spending.
- Opportunity for some countries to use low oil prices to reduce fuel subsidies to free up fiscal space (Cameroon, Nigeria, Senegal); examples exist (Mozambique, South Sudan) and Burkina Faso is pursuing similar steps.
- Scope to reexamine effectiveness of other subsidies (for example, Malawi’s farm input subsidy program).
- Elements to increase chances of successful subsidy reform: (1) a comprehensive reform plan; (2) a far-reaching communication strategy aided by improvements in transparency; (3) appropriately phased energy price increases, which can be sequenced differently across energy products; (4) improvement in the efficiency of state-owned enterprises (SOEs) to reduce producer subsidies; (5) targeted measures to protect the poor; and (6) institutional reforms that depoliticize energy pricing, such as introduction of automatic pricing mechanisms.

### Improving Public Financial Management
- Weak public financial management has contributed to domestic payment arrears, hampered public investment and social spending efficiency, and increased public sector balance sheet vulnerabilities.
- Actions needed: put in place mechanisms to monitor domestic arrears with specific actions to clear and prevent accumulation; ensure strategies to clear arrears are consistent with macroeconomic stability, anchored on inclusive growth, and implemented transparently.
- Examples of reforms being implemented: enhancing medium-term expenditure frameworks (Angola, Botswana); switching to a treasury single account (Republic of Congo, Côte d’Ivoire, Guinea, Sierra Leone, Tanzania); moving to performance-based budgeting (Botswana); enforcing internal controls (Angola, Uganda); improving capital project selection and reducing SOE and PPP risks (Seychelles).
- Better governance can raise efficiency of public investment with significant growth payoffs.

### Building Strong Debt Management Frameworks and Fiscal Institutions
- Enhance debt management frameworks and transparency to address foreign exchange and refinancing risks.
- Examples: debt buybacks to ease near-term refinancing risks and reprofile external debt (Côte d’Ivoire, Ghana); better aligning repayment currency with foreign exchange earnings (Seychelles); using multitranche Eurobond issuances.
- Develop credible medium-term fiscal frameworks requiring fiscal rules supported by adequate public financial management systems, greater use of state-contingent financial instruments, and for commodity exporters, institutional frameworks to manage natural resource revenue inflows.

### Enhancing External Sector Resilience
- Fostering economic diversification:
  - Cross-country data suggest macroeconomic stability, improved access to credit, good infrastructure, conducive regulatory environments, and a skilled workforce are associated with higher economic diversification and would enhance resilience to commodity price shocks.
  - Labor market reforms that align productivity and wages and facilitate resource reallocation across sectors are important.
  - Policies supporting export-oriented sectors could encourage new industries, if carefully implemented.
- Promoting exchange rate flexibility:
  - Allowing greater exchange rate flexibility, where foreign currency balance sheet mismatches are not a concern, would promote adjustment to commodity price shocks and development of tradables.
  - In fixed exchange rate regimes (including CEMAC and WAEMU), flexibility would mainly stem from relative price adjustments and require further structural reforms to enhance wage and price flexibility; policies should aim to build adequate foreign exchange reserves and sustain fiscal positions consistent with the peg.
- Dealing with capital flows:
  - Easy global financial conditions and capital inflows into frontier economies can help finance development but are fickle and create macroeconomic challenges.
  - Large inflows can cause appreciation pressures, overvaluation risk, and financial imbalance buildup; large outflows can cause depreciation, higher inflation, tighter domestic financial conditions, and sharp activity contraction.
  - Countries with stronger fundamentals and larger buffers are better positioned to contain these risks.
  - Recommended actions: implement countervailing macroeconomic and macroprudential policies while restoring buffers; reserve foreign exchange interventions for temporarily disorderly market conditions; attract FDI inflows as more stable, longer-term funding.

### Improving the Effectiveness of Monetary Policy
- Reinvigorating credit growth:
  - Monetary authorities are trying to reinvigorate decelerating credit growth with varying success.
  - Some countries used interest rate controls to reduce cost of credit, leading to lower credit availability (Kenya).
  - Nigeria introduced a requirement for banks to achieve a minimum loan-to-deposit ratio, which could weaken banks’ balance sheets and lower cost of funds.
  - Measures to lift credit growth: develop credit or collateral registries; resolve nonperforming loans and domestic arrears (Liberia, Mali, Zimbabwe).
  - A more efficient financial sector can mobilize domestic savings and channel them toward productive investment; shifting investment from public to private sector could create space for private sector credit growth, especially in non-resource-intensive countries.
- Enhancing the monetary transmission mechanism:
  - The transmission between policy rate and lending conditions remains weak in many countries.
  - Required actions: mop up excess liquidity, develop deeper interbank markets and well-functioning secondary markets, and establish repo transactions for public debt securities (CEMAC, WAEMU).
  - Countries or monetary areas facing excess liquidity (CEMAC, Namibia) could use open market operations or higher reserve requirements.
  - Countries with interest rate-based frameworks should guide short-term market rates using interest rate corridors linked to key policy rate (Malawi, Mauritius, Rwanda, Seychelles).
  - Improve effectiveness by reducing fiscal dominance, setting a medium-term inflation objective, ensuring operational independence of the central bank, and enhancing quality and timeliness of information sharing between government and central bank.
  - Example: Zimbabwe’s steps toward monetary policy normalization (including limiting the fiscal deficit and liberalizing the foreign exchange market) have reduced the spread between the official and parallel market exchange rates through August 2019.

### Repairing Banking Sector Balance Sheets
- Reducing NPLs:
  - Reducing NPLs would reinvigorate credit and support growth.
  - Strategies adopted with varying results: mandate accelerated write-offs (Comoros, Mauritius, Sierra Leone, Tanzania); transfer defaulted claims to asset management companies (Angola, Guinea-Bissau, Zimbabwe); clear domestic arrears (Eswatini, Gabon); restructure or resolve failing banks (Côte d’Ivoire, Ghana, Kenya); facilitate foreclosure or out-of-court settlements (Cameroon); combine measures (Malawi, Mali, Togo).
- Improving banking sector resilience:
  - Requires better use of macroprudential and microprudential policies.
  - Strengthening resilience is part of broader effort to restore credit growth and support investment.

*Regional Economic Outlook: Sub‑Saharan Africa — Chapter 1*

### 1. NAVIGATING UNCERTAINTY

### 1. NAVIGATING UNCERTAINTY

### Financial stability and macroprudential policy
- At the end of 2016, countries had only five macroprudential measures available on average.
- Macroprudential measures most used by sub-Saharan African countries:
  - Restrictions on banks’ foreign exchange positions.
  - Reserve requirements.
  - Capital requirements.
- Since 2017, additional countries adopted higher capital requirements as a macroprudential tool, including Angola, Ghana, Mozambique, and Tanzania.
- Recommended policy actions to safeguard financial stability and limit cross-border risk transmission:
  - Improve cross-country collaboration among home and host supervisors.
  - Expedite harmonization of regulations and supervisory procedures, including complying with core Basel standards.
  - Establish an appropriate mechanism for resolving unviable cross-border financial institutions.
- Correspondent banking:
  - Some countries continue to face challenges in securing correspondent banking relationships.
  - Ongoing reforms to strengthen financial stability frameworks and address AML/CFT risks would help reduce the risk of further loss of correspondent banking relationships.
- Regulatory improvements to reduce concentration and sovereign exposures:
  - Strengthen regulations on concentration risks, including requiring the use of realistic capital adequacy risk weights for loans to SOEs, to improve banking sector resilience where relevant.

### Building resilience to natural disasters and climate shocks
- A comprehensive resilience approach should consist of:
  - Enhancing structural resilience.
  - Building financial resilience.
  - Making contingent planning and related investments.
- Examples of structural resilience measures in the region:
  - New crop varieties more resilient to droughts and water stress; local rainwater harvesting (Burkina Faso).
  - Mobile technology providing rainfall forecasts and facilitating crop insurance purchases (Ethiopia, Kenya, Rwanda).
  - Relocation away from flood-prone areas (São Tomé and Príncipe and Zambia).
  - Diversifying energy generation away from drought-prone hydropower toward gas and geothermal (Kenya).
- Financial resilience measures:
  - Create fiscal buffers and use prearranged financial instruments to protect fiscal sustainability and manage recovery costs.
  - Regional sovereign insurance: African Risk Capacity, established in 2013, covers droughts and extreme weather events.
- Contingency planning:
  - Contingency planning and related investments can ensure speedy responses following disasters.
  - Increase households’ and firms’ access to finance and cost-effective insurance to help risk transfer.
  - Enhance social safety nets and improve public health systems to aid risk retention.
- International coordination and financing:
  - Sustained resilience to climate shocks requires international coordination because of carbon-emissions externalities.
  - Stepped-up and targeted financing from donors and international financial institutions would help build resilience in sub-Saharan African countries.

### Raising longer-term growth: structural reforms and integration
- Higher medium-term growth requires broad reforms to boost productivity and investment in physical and human capital.
- Key dimensions and associated recommendations:
  - Promoting regional and global integration:
    - Develop value chains to support industrialization and lift growth.
    - Sub-Saharan Africa’s ratio of foreign value added to total exports is only about 20 percent, lower than Europe and Asia, and has been stagnant since the 1990s.
    - Value chain expansion could come through deeper intraregional trade under the AfCFTA; this requires tackling tariff and nontariff barriers, including trade and logistics costs.
    - African central banks are acting to connect major cross-border payment systems to facilitate intraregional payments.
  - Promoting competitiveness:
    - Strengthen competition across firms to improve productivity, promote export competitiveness, and lower consumer prices.
    - A holistic reform strategy is needed: effective competition policy framework, opening sectors to trade and FDI, cutting red tape, and creating an even playing field among firms.
    - Competitiveness is supported by strong institutions, including contract enforcement and rule of law.
  - Harnessing the Fourth Industrial Revolution:
    - Development strategies should:
      - Build digital infrastructure (region has the lowest internet penetration in the world).
      - Ensure education systems meet changing skill requirements and support lifelong learning.
      - Promote smart urbanization to build hubs of innovation.
  - Ensuring inclusiveness:
    - Fiscal policy should move toward more progressive taxation to fund expanded access to high-quality education and health services, while replacing regressive expenditures such as fuel subsidies with more effective and targeted social safety nets.
    - Promote gender equality to broaden gains from growth: gender inequality in the region remains among the highest in the world.
    - Increase access to health, education services, and promote financial inclusion—especially in rural and underserved areas—to boost female labor force participation in higher-value-added activity.
    - Improve labor market outcomes for youth by promoting education and training and advancing structural reforms to lift growth.
    - Deepen financial access by supporting financial innovation while safeguarding stability through enhanced consumer protection and cybersecurity. This would extend sub-Saharan Africa’s global leadership in mobile money accounts per capita, mobile money outlets, and volume of mobile money transactions.

### Governance and institutional reforms (Box 1.1)
- Improving governance can improve growth and economic performance:
  - Bringing sub-Saharan Africa’s average governance scores to the rest of the world average could boost the region’s growth by about 1 percent of GDP.
- Channels through which weak governance and corruption reduce performance:
  - Higher tax evasion and lower tax revenue.
  - Shift in composition of government spending and lower efficiency of government spending.
  - Higher procurement costs, increased central bank financing, and weaker financial stability.
- Near-term governance improvements and priorities:
  - Adhere to existing laws and public-financial-management regulations to close loopholes that inflate procurement costs and lead to inefficient public investment.
  - Increase checks and balances on state-owned enterprises to improve performance and contain fiscal risks.
  - Safeguard central bank independence to strengthen financial supervision.
  - Bolster AML/CFT frameworks: customer due diligence, beneficial ownership, asset declarations, and measures for politically exposed persons to improve tracking of illicit transactions and asset recovery.

### Lessons for the African Continental Free Trade Agreement (AfCFTA) (Box 1.2)
- RTAs have broadly positive macroeconomic effects: trade creation, enhanced growth (scale effects and technology diffusion), and increased FDI.
- AfCFTA’s success depends on complementary reforms in three areas:
  - Design of the agreement:
    - Complement AfCFTA with a gradual reduction of most-favored-nation (MFN) tariffs to expand global trade.
    - Coordinate a reasonable common external tariff (CET) mindful of countries at different development stages; avoid CET levels that raise cost of living for low-income households.
    - Ensure rules of origin are nonrestrictive and avoid complexity that increases bureaucratic costs and discourages trade.
  - Implementation of the agreement:
    - Strengthen AfCFTA institutions and grant authority to create an effective monitoring mechanism to identify lagging countries.
  - Accompanying broad-based reform agenda:
    - Maintain macroeconomic stability, foster private-sector-friendly business environments, tackle labor market distortions, enhance social protection, increase domestic revenue mobilization.
    - At regional level, scale up continental infrastructure investment and create a regional competition commission.
- Comparisons and evidence:
  - RTAs have generated trade creation with minimal trade diversion in many cases; NAFTA and AFTA showed substantial trade creation while Mercosur showed some trade diversion.
  - Membership in RTAs can reduce growth volatility and raise FDI by extending domestic markets and deep integration provisions.

*Source: Regional Economic Outlook: Sub‑Saharan Africa (chapter 1).*

### Box 1.2. continued.

### Box 1.2. continued.

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*REGIONAL ECONOMIC OUTLOOK: SUB-SAHARAN AFRICA — Box 1.2. continued.*

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_Source: https://www.imf.org/-/media/files/publications/reo/afr/2019/october/english/ch1.pdf_