Transcript

Washington, D.C.
April 17, 2015

MR. KANYEGIRIRE: Good morning, everyone. My name is Andrew Kanyegirire. I am with the Communications team and welcome to this press briefing that’s being held by the Director for the African Department here at the International Monetary Fund, Madam Antoinette Sayeh.

We shall start with some quick remarks from Antoinette, after which we shall field some questions. Keep your questions precise and short, provide your name as well and your media house. Can I also request that we have cell phones turned to silent. And I think at this stage I’ll invite Antoinette. Thank you.

MS. SAYEH: Thank you very much, Andrew, and good morning, everyone. Thank you for joining us today for this briefing on recent economic developments in the sub-Saharan Africa region and the prospects we see for the region.

Before taking your questions, I’ll touch on maybe three areas. First, the economic outlook; second, the risks we see to it; and finally, some thoughts on how countries might go about addressing the challenges they face.

Sub-Saharan Africa’s economic outlook remains favorable and the region is set to register another year of solid economic performance. Indeed, the region’s economy is expected to expand by 4.5 percent in 2015 and will continue being one of the fastest growing regions in the world, in fact, second only to emerging and developing Asia. That said, the economic expansion this year will be at the lower end of the range experienced in recent years. This mainly reflects the impact of the sharp decline in oil and commodity prices that we’ve witnessed over the last 6 months.

However, as always for a region with so much diversity, the effect of this shock will be highly heterogeneous across the region. On the one hand, the region’s eight oil exporters will be hard hit and with generally limited fiscal and external buffers, they are expected to undertake significant fiscal adjustment, which will vent the growth outlook.

For much of the rest of the region, near-term prospects remain quite positive and most countries plan to benefit from lower oil prices. Still for some of them, this positive effect will be partly offset by the decline in prices of some of the non-oil commodities they export. Overall, growth in oil importers, in particular low income countries, should remain solid and driven by investment in infrastructure and strong consumption. A notable exception to this favorable picture among oil importers is South Africa where growth remains lackluster, held back by continuing problems in the electricity sector. In addition, in Guinea, Liberia, and Sierra Leone, the Ebola outbreak, although it is slowing abating, continues to exact a heavy economic and social toll. All in all, the outlook remains for solid growth, although new challenges have emerged.

This outlook is subject to a number of downside risks. Let me elaborate here on the three most important ones we see for the region. First, on the external front, global financial conditions facing the region have tightened somewhat and could tighten further still in the period ahead as monetary policy normalization proceeds in the United States. In that context the large fiscal and current account deficits that prevail in some countries, especially frontier market economies could leave them vulnerable to a rapid reversal in market sentiment and a reduction in external financing.

Second, the uneven global recovery could also disappoint notably in Europe and China, which are sub-Saharan Africa’s main trading partners.

Third and domestically, security-related risks have recently come to the fore in a number of countries, especially in the Sahel, but also in Kenya. Beyond the unbearable humanitarian costs they have on societies, these incidents, if they were to escalate, would also pose serious fiscal risks and further deter domestic and foreign investors. The election scheduled this year in several countries of the region could also complicate the implementation of politically difficult reforms.

Against this backdrop, what should policies focus on? In the short run, dealing with the oil shock will be the priority. Faced with a massive shock and with limited buffers, oil exporters will have no choice but to undertake fiscal adjustment. Spending cuts should be directed to the extent possible to non-priority recurrent spending, but significant cuts in public investment could be unavoidable. Where feasible, exchange rate flexibility will also be important to preserve scarce external reserves.

The drop in oil prices also provides a unique opportunity to advance politically difficult energy subsidy reforms across the region. And from a more medium term perspective, the current commodity shock is also a powerful reminder of the need to make more rapid progress towards economic diversification and structural transformation to ensure strong and durable growth. This will in turn require striking the appropriate balance between scaling up outlays on human capital and infrastructure development and avoiding an unsustainable debt buildup.

Let me close by adding that we remain very optimistic about the long-term growth prospects of the region. Consider demographic trends in the region. Work that we will soon be publishing shows that by 2030 or so, the number of people reaching working age from the region will exceed that of the rest of the world combined. This is something with huge implications for both the region and the global economy. This offers a tremendous opportunity for sub-Saharan Africa, which properly tapped, can be a strong engine for growth going forward.

These and other topical issues will be discussed extensively in our new issue of our biannual Regional Economic Outlook for Sub-Saharan Africa, which we are now finalizing. It will be published on April 28 with a launch event in Accra.

Let me stop there. Thank you very much for your attention and happy to take your questions.

MR. KANYEGIRIRE: Thank you very much. The remarks that have just been delivered will be made available at the end of this press briefing. We have about 20 minutes or so, a little bit more, for questions. Please state your name, keep your question precise, state your media house, and again, keep cell phones on silent.

QUESTIONER: Hello, good morning. I am particularly worried about -- in fact I am convinced that there is no economic talk and no development or any of that issue that has to do with task table reliable electric supply. And this is particularly so for Nigeria where I come from and I’m sure the problem is happening. I don’t know. What would you say should be the focus? How do we overcome this particular problem that is becoming endemic in the region?

MS. SAYEH: Thank you for that very important question. The electricity, of course, is a huge constraint to growth and to the ambitions that many sub-Saharan African countries to diversify and have structural transformation realized in the immediate future. Some countries want it yesterday. It’s not just low income countries in the region, but across the board as we see now in also South Africa, struggling with the electricity problems as well. As you say, Nigeria also very challenged on that account.

Countries certainly want and have expressed their desire to invest more heavily in infrastructure that permits them to generate and distribute more electricity and power. And for that, of course, they need to both redouble their efforts to create their own fiscal space, make room in their budgets to finance more investments by, of course, doing better on the issue of resource mobilization, revenue mobilization, but also better prioritizing their expenditures in their budgets and being able to, therefore, have more room to finance infrastructure. But, of course, their ability to finance infrastructure is limited. In addition to public sector borrowing for infrastructure purposes, it’s a huge need and countries are very interested in increasing their partnerships with the private sector through public-private partnerships to do better in terms of infrastructure financing and innovating with the capacity that private participants can bring to the table. So a number of things including, of course, generating more of their own revenue; entering into more partnerships with the private sector and those partnerships, of course, have benefits, but they also have risks that need to be properly managed; a regulatory framework that appropriately takes account of those risks; procurement practices that are amenable to making sure that the public sector gets the best out of this and, of course, the private sector gets the returns that they’re looking for; and even beyond the immediate investments, of course, there are policy issues that countries also need to deal with. A number of countries currently have the public sector providers of electricity and power that are not permitted to recover their costs that they have in generating those through tariffs they are not allowed to adjust to take account of those costs. So tariff reforms, electricity tariff reforms, are also an important thing and making sure that those continue to allow companies to cover their costs. So a package of reforms that countries will need to take forward to do better in the way of providing more electricity.

MR. KANYEGIRIRE: I’ll try to get questions from across the room.

QUESTIONER: Thank you very much. My question is on the deficit reduction in Ghanaa. Recently the program cannot agree with the Fund, which is first a deficit reduction from about 9.5 in 2014 to about 3.7 in 2017. Don’t you think this is overly ambitious?

MS. SAYEH: No, we don’t think it’s overly ambitious. It’s certainly a considerable fiscal adjustment. Ghana needs a considerable fiscal adjustment and needs to frontload that adjustment to deal with the very dire situation it’s been in over the course of the last 2 to 3 years as a result of very large fiscal and current account deficits that have really reduced growth, led to significant inflation, and undermined its ability to pay attention to the issues that Ghana needs to in the way of financing and making room for different spending needs to support sustainable growth in Ghana.

The adjustment effort is frontloaded given, of course, Ghana’s track record in fiscal adjustment has not been the best in the past. It’s very important as a signaling effect, both to Ghana’s population, that is I think there’s a consensus that the fiscal deficit issues need to be addressed and that consensus arose from a discussion that the government had a year ago with Ghanaian society by bringing different parties to the table to talk about the type of package that needed to be pursued. And very much a consensus that the deficit needed to be addressed and addressed in a way that minimized the risk of the program going off-track as Ghana approaches a new set of elections, which it will next year.

So we think it’s entirely feasible for Ghana to achieve that fiscal adjustment, both in terms of reinforcing its revenue efforts, increasing revenues, not necessarily just by increasing taxes, but actually increasing revenue at administration, dealing with some exemptions, and also, of course, better prioritizing expenditures. So we certainly don’t think it’s over-ambitious. It’s absolutely doable if the political and social determination is there to do it, and we think that it is.

QUESTIONER: We have seen a lot of currency volatility in various countries across the continent and it’s interesting because the President has always said that one of the reasons he’s been working closely with the IMF is to create currency stability and to regain investor confidence. Do you think that we’re going to see a lot more people knocking on the IMF’s door over the next few months on the continent? We’ve seen currency volatility because of commodity price fluctuations. Yes, you’ve got a lot of countries going to Euro Bond Market, but we could see as many countries needing help.

MS. SAYEH: Well, we certainly continue to advise our country authorities. That’s a big part of our relationship with them is to be there to offer advice that they may need that very difficult time for a number of countries this year. Not just oil exporting countries, but some other countries that have also suffered from other commodity price declines, or have suffered in the course of 2 or more years of domestic mistakes of their own or domestic challenges not well managed of their own. So our work with them will continue to cover the three areas that we traditionally work on: Providing policy advice based on best practice that we have seen across other countries in dealing with specific challenges; technical assistance and training, a capacity that they need to deal with issues that may be new to them or issues in which they don’t have enough deep capacity in their own administrations; and in the case of balance of payments needs and financing needs, of course, financing when that’s necessary and demonstrated to be needed.

And so we certainly expect to be more engaged at times of difficulty. This is our job. Difficult times are times when our dialogue is perhaps most noticeable with country authorities. This year is certainly one of them for the eight or so oil producers that are sub-Saharan Africa’s account for 50 percent of the GDP in the region and are quite anxious to deal with this challenge and adjust to it.

QUESTIONER: Back to electricity. The challenge in Ghana is worse as you know. Are you so far satisfied -- I’m talking about IMF -- about the things put in place by the government to tackle the situation? And you also support the idea that privatization of the electricity company of Ghana could be panacea to industry.

MS. SAYEH: The energy issue is, indeed, problematic in Ghana and there are efforts being made to address that. We certainly can’t say that we’re 100 percent satisfied that everything is going to be hunky dory tomorrow. It’s a difficult issue. The government recognizes that it’s difficult and it’s seeking to address those both in public investments and also seeing what is possible on the private side.

I have to say that I’m not in detailed knowledge of some of the energy issues because that’s not a focus of what we’ve been working on with Ghana. I certainly talk with the government about the financing issues that they may have through consideration of different electricity investments, but we are not electricity experts. And so I can’t pretend to know what is best in the way of electricity choices for Ghana.

QUESTIONER: Thank you. While you have mentioned the plight of security in certain regions of Africa, from Kenya to Central African Republic, so can we imagine that IMF put in place a kind of mechanism through the budget? I don't know what but like you -- the same mechanism you created for Ebola case.

Can we imagine that the IMF to help those countries involved in fighting -- in the fighting against terror groups, that this -- even if it is not the same, if you can imagine a kind of help you can give to these countries through their budget.

MS. SAYEH: This is an important question. A number of countries, of course, are facing threats that have not been known in the past and have not been big threats in the past -- terrorist threats -- and seeking to deal with them in the context of constrained budgets that they have and trying to mitigate the impact of those threats on their economies.

We've seen already in the region -- you talk about Northern Cameroon, Chad, and Northern Nigeria, Niger, that area -- the economic impact of, of course, the Boko Haram situation that has reduced trade flows across borders there and, of course, is leading countries to seek to readjust, reallocate spending to make room for the effort they need to reinforce on the security side.

So, certainly, a need for better supporting critical security efforts are priorities that I think the international community needs to help countries support.

And, in the context of programs that we have with some countries, where they may be facing what are clearly shocks related to threats, security threats, and security realization as people, refugees, move across borders, that sort of thing that draws on their budgets to help to deal with that, certainly, it's possible for us to look at those issues and see whether they have a balance of payments need brought about by their need to really adjust to those circumstances.

This is new territory, and this is -- these are new developments that we are thinking about and -- but, certainly, it's possible in our financing relationships with some of our member countries to look at their needs and to determine whether we can help.

QUESTIONER: I come from Burkina Faso. Our country has gone through a difficult time last year. How is the Fund intending to support this country in view of the coming elections in October?

There was an impact on the economic system and on the living of the population. How is the Fund going to support the transition towards the elections in October 2015?

MS. SAYEH: Thank you for that very good question.

Burkina Faso, of course, has been a country with which the Fund has had a longstanding relationship and a good partnership for many years.

Burkina has, in the past, been a country that has had -- set very good examples in terms of what it's been able to achieve on the macro front and in some of the social challenges on inclusive growth and other things that it's worked towards.

So we certainly want to continue that partnership, and we've illustrated our availability to work quickly with the transition authorities in the way we fielded a mission very quickly to Burkina Faso in December of last year and, since then, have been working with the authorities to try to bring to our board as quickly as possible the review, the next review, under the existing program that there was. The government had confirmed its desire to continue with that program, and we envisage going to our board by the end of May with the program for Burkina to move forward with our relationship there.

QUESTIONER: You talked about unsustainable debt. Several countries in Sub-Saharan are pushing the infrastructure question as public investment, and yet, there are global distortions which might force them to slow down. So, in as far as that is concerned, where is the tipping point?

And also, in the acquisition of debt to push infrastructure, where is the tipping point? Where do you think they should stop in light of the availability of funds from China?

I hope you know that.

And the other question is from the messages I've been getting from the press briefings before it seems like Sub-Saharan or low-income countries are being told you're kind of on your own in light of U.S. and E.U. forces pulling opposite directions.

What would you recommend they will do from an African perspective?

MS. SAYEH: Last point again? It wasn't clear.

QUESTIONER: Low-income countries. My understanding of the message is you need to sort yourselves in light of the strong U.S./weak E.U.; they're pulling in opposite directions.
What would you advise these countries to do from an African perspective?

MS. SAYEH: Okay. Several questions there.

I think on the first question, your question about infrastructure and what is the tipping point and what is the balance to strike. I think you wanted to say also between ramping up infrastructure and, of course, debt sustainability.

In light of, I think, access to finance that countries have had through the sovereign bond issuances, that may not be as possible as they've been in the last few years or perhaps may be more costly as countries -- as the U.S., for example, exits the unconventional monetary policies, less global liquidity, and maybe less search for yield, so less anxiety, less willingness perhaps of investors to buy into sovereign bonds.

We certainly think that our countries that had planned to issue new sovereign bonds certainly need to be looking at that in the context of a somewhat changed environment than it has been in the last few years, where we've had a number of maiden bond issuances by Sub-Saharan African countries at very attractive and good yields.

Countries will need to consider whether possible higher cost bonds are affordable in light of likely increases in yields but also exchange rate movements that they need to also keep in mind as, you know; the dollar strengthens and continues to strengthen.

So how they finance infrastructure through reliance on sovereign bonds is one issue, and they need to look at that and, more generally, how they finance infrastructure through non-concessional borrowing.

And you mentioned financing available from China. China is not the only provider of nonconcessional borrowing, of course. Countries need to pay the same attention to issues around nonconcessional borrowing from any source of nonconcessional borrowing. They need to manage those properly.

We have been working, as you probably know, in the last few years to revise our debt limits policy in light of the need countries saw to make more room for borrowing to finance infrastructure while, at the same time, helping them to safeguard sustainability -- debt sustainability.

And the new debt limits policy approved by our board in December will be going into effect at the end of June and is different in the way of not -- for countries that are not at high risk of debt distress, not making a distinction between nonconcessional versus concessional debt, but certainly asking countries to look at the total debt package and see how that is consistent with their debt sustainability, but giving them the freedom to choose between concessional and nonconcessional borrowing as concessional borrowing may not be available in enough magnitudes for infrastructure, so to allow them to draw a nonconcessional financing for infrastructure within limits that maintain debt sustainability.

So let me -- and the second question was?

QUESTIONER: I can repeat.

MS. SAYEH: You said they were up and down. Are you talking about their currencies or their monetary policies, or what exactly is up and down?

QUESTIONER: I was speaking about their monetary policies. It's been a topic basically since Monday, about the strong U.S./weak euro and their monetary policies, and low-income countries are caught in the middle.

The message I got is that you guys must sort your domestic issues in line with this.

What's your advice in that regard?

MS. SAYEH: Well, certainly, countries have to pay attention to what's happening and the impact on currencies as a result of different monetary policy stances in the U.S. versus Europe.

As I referred already to the advice we're giving countries when they deal with possible -- the possible impact on the availability of financing through sovereign bonds, and there's like possibly an impact on the availability of financing that some emerging -- some frontier countries will have to consider as they consider their financing choices.

On the exchange rate side, of course, countries -- you have to look, I think, on a country-by-country basis to give credible advice as to how countries ought to be adjusting, or not, their policies in light of what's happening on the global side between actions that the U.S. or the European countries are taking.

And our low-income countries, I think, in Sub-Saharan Africa certainly need to be cognizant of how exchange rate changes may translate into balance sheet -- the balance sheet situations in their countries' financial sector and private sector balance sheets, and ought to be thinking about policies they bring to bear to deal with those.

There's no suggestion, I think -- I've not necessarily been in the meetings that you've talked about in the course of the last few days, where you've -- you think you've gotten the message that -- that message to low-income countries is that you're on this on your own. That is certainly not our message to our member countries.

We're certainly here to continue to give advice to them on the challenges that they face, whether they have programs with us or not, in our dialogue with them, our policy advice to them, our technical assistance to them, all of that with a view to helping them to make the best policy choices, with the difficult circumstances that they face sometimes.

MR. KANYEGIRIRE: I can only do two quick questions.

QUESTIONER: My question is on the issue of a government having a huge recurrent expenditure in as far as wage bills are concerned.

What will be your advice as IMF in terms of countries bringing down that wage bill?

Especially in Swaziland, that's a huge problem because it takes a big chunk of the national budget.

MS. SAYEH: That's an important subject. And, it's not only Swaziland. It's quite a few countries that are sort of struggling to contain the share of the wage bill and to, in doing so, make room for development spending that they need to increase.

And, you know, I think again one has to, of course, look at the individual country case to say how exactly they could go about efforts to do that.

On the one hand, of course, countries can try to raise their revenues to be able to reduce the share that a fixed wage bill is taking out of it.

But, of course, what feeds the wage bill is more critical, I think, in the medium term to deal with the underlining problems. And some of those in some countries can be as low-hanging fruits of just cleaning up the wage bill in terms of removal of ghosts, as we call them, from payrolls, people who are receiving salaries without actually working, and a number of things that governments can do to get a better handle on their payrolls.

Some countries, where governments absolutely have to look at the size of the public sector and the size of the government, and whether it's necessary to maintain such a size of government to deliver the public goods that the country has agreed is important for governments to deliver, and to then adjust the size of the service, the civil service, to a smaller size if it's necessary to curtail that role.

And civil service reform is not the easiest thing to go about. It's politically difficult. It's complicated. I think even partners and donors have become wary of work on civil service reform sometimes.

But that's certainly an issue that is absolutely essential for containing the wage bill in a sustainable way in some countries and also in building capacity that countries need to deal with problems.

So I think from country to country it differs exactly how to do it, but certainly payroll management efforts, civil service reform, working harder to make fiscal room also by increasing revenues are some of the ways that they should --

MR. KANYEGIRIRE: So, one last question. The gentleman at the back. Please keep it short.

QUESTIONER: In view of the decline in oil prices, the IMF has recommended eliminating the oil subsidies. The decision was made by ministers, but there's a lot of reluctance in terms of its implementation.

How is it possible to convince the government of the necessity of the situation, and what concretely will be the impact of the elimination of oil subsidies to support domestic demand?

MS. SAYEH: And, a question that applies also to other countries that are, of course, trying to make difficult decisions and carry them out around subsidy reform.

And we've been saying, and we continue to say, that this is the moment to try to move, to push ahead what is usually a very thing to do, and to reduce subsidies at a time when world petroleum prices, fuel prices are low like this, and where, therefore, it doesn't require a subsidy to have a low price, a relatively lower price. This is the time that governments ought to really move ahead and deal with this.

It's a difficult issue nonetheless because I think people in countries are anxious to be convinced that whatever savings governments will make in reducing subsidies will actually be put to good use.

And that's certainly a lesson, for example, that I think the authorities in Nigeria felt they took from their efforts a few years back to reduce the subsidies there in Nigeria, that it was important to put forward a credible plan to utilize the savings from subsidy reduction and show how that would improve lives, to be able to move on further with subsidy reform.

And we certainly encourage our countries to make sure they communicate clearly to their population about what they intend to do with the gains from subsidy reduction and to actually show some first examples of how they might use those resources to convince people that it's worth going down that path. That's part of the -- you know, the convincing, I think, that countries have to do to their populations, to make it politically feasible to do it.

MR. KANYEGIRIRE: Thank you very much, Antoinette.

Again, just to repeat that the notes that were delivered at the beginning of the press briefing are available on the way out. We have copies in various languages.

And thanks for coming to this briefing. Thanks for your time.

* * * * *