Transcript

Transcript of African Department Press Briefing

October 8, 2016

P R O C E E D I N G S

MR.KANYEGIRIRE: Good afternoon. My name is Andrew Kanyegirire. I'm with the Communications Department here at the IMF. Welcome to this Press Briefing with the Director for the African Department, here at the IMF, Mr. Abebe Aemro Selassie.

And as some of you might aware, Mr. Selassie was, until last month, a deputy director at the department. He has replaced Madame Antoinette Sayeh. Some of you know him and have met him before. He will make his opening remarks available at the end of this briefing. We shall also make the release that confirmed his announcement -- it's on our website, but we shall also make it available at the end of this briefing. So, I'll now turn over to Mr. Selassie to make his opening remarks and then we'll go to the Q&A session. Thank you.

MR. SELASSIE: Good afternoon. Thank you very much for joining us today. I'll be -- I'll try and be as brief as I can. Before I take your questions, I just want to lay out the economic outlook for Sub-Saharan Africa, our assessment of what the policy requirements are to address the current challenges facing the region and how promote strong, durable and inclusive growth, that's very much needed.

Economic growth in Sub-Saharan Africa this year is set to be -- to drop to its lowest level in more than 20 years. We are, at the moment, projecting close to the order of 1.4 percent as you will have seen, lower than last year's 3.5 percent and indeed, much below the 5 percent and more that the region was enjoying between 2010 and 2014. Two broad factors explain this development. The external environment facing the region has deteriorated. Notably, commodity prices, of course, but also financial market conditions have tightened. The policy response in many of the countries that have been mostly affected by these shocks has also been delayed and unfortunately, incomplete, raising uncertainty, deterring private investment and stifling new sources of growth.

All this said, I think we should guard against swinging from the strong optimism of the recent years about the region's economic prospects to the excess pessimism that seems to be seeping in. The full picture that we see is one of multi-speed growth in which the regional aggregate number of 1.4 percent growth this year considerably masks the diversity that prevails across the region. In particular, close to half the countries in the region -- about 19 out of 45 odd countries in Sub-Saharan Africa continue to enjoy robust growth, including the likes of Côte d’Ivoire, Ethiopia, Senegal, and Tanzania with economic output set to expand by 6 percent or more by this year.

And speaking to this point, this year, in contrast to the weighted average growth of 1.4 percent medium growth is going to be of the order of 3.8 percent. It is, however, the commodity exporters that are under severe economic strain. This is particularly the case for oil exporters, notably, Angola and Nigeria and five of the six countries in the central African monetary -- economic and monetary union. The near-term prospects have worsened significantly in recent months. In these countries, the pain is spreading from the oil sector to the non-oil part of the economy.

Conditions are also particularly difficult in South Africa at the moment, another country which relies on -- to a significant degree on commodity exports with outputs expansion expected to be (inaudible) this year or next year. There are, of course, also, as you may know, challenges. With these challenges are compounded in some country cases by a -- the failure of acute drought in the Lesotho, Malawi, Zambia and Zimbabwe.

Looking ahead, we are projecting a modest pickup in economic activity. We think this is possible, but provided strong action is taken. Subject to reforms being initiated promptly in the coming months, growth should recover to around 3 percent next year and to highest still rates of growth beyond that. But again, I would stress that this pickup in activity is highly predicated on countries taking action to address the large imbalances and addressing the policy and certainty in some of the largest economies in the region in particular. And, of course, a return to high growth rates is imperative to address the much needed job creation in the region and to continue to bear down on poverty.

What then are the policies called for at this juncture? The hardest hit countries, especially of oil -- especially oil exporters, need to act promptly as the adverse external environment that they're facing is set to endure and existing buffers have been exhausted. In these countries, growth rebound will require a sustained adjustment effort based on a comprehensive and internally coherent, consistent set of policies to re-establish macro stability. This implies allowing exchange rates to fully absorb the external pressures that these country -- that those countries particularly outside monetary unions are facing, coupled with strong and orderly adjustment to contain fiscal deficits and a tight monetary stance focused on containing inflation.

For countries within monetary unions, the fiscal adjustment requirement is likely to be stronger still in dealing with this shock and central bank financing of excessive deficits needs to be curtailed. Let me also -- let me stress here that for these countries that are being impacted by low commodity prices, adjustment is unavoidable given the scale and persistent nature of the shock. The options rather are between disorderly and the more orderly adjustment process. Further delays in grappling with the elevated macro imbalances are certain to undermine near-term growth and delay robust and job rates recovery.

On the other hand, adoption of a comprehensive and internally coherent set of policies we think would allow a much more orderly adjustment process and facilitate a quicker growth recovery. Indeed, if this adjustment is anchored in a credible medium-term framework and is supported by concessional financing, the place of adjustment can be made more gradual attenuating the near-term growth impact significantly.

I think at this juncture, a few words are also in order about the countries that are continuing to enjoy strong growth in the region. In many cases, despite the strong growth outcomes of recent years, fiscal deficits have widened somewhat and debt levels have started to increase. To a large extent, this reflects the stepped up in development spending countries have been undertaking. While policy action is not as urgent for us -- for the hardest hit countries that I was talking about earlier, here too, with some exceptions, there is a need to strike a better balance between increased investment spending needs and debt sustainability considerations. In this respect, we're strongly advocating reforms aimed at increasing revenue mobilization which will be particularly helpful, of course, by containing fiscal deficits while sustaining increased investments.

Wrapping up, I would like to stress that we view Sub-Saharan Africa as a region of immense economic potential, but in some cases, this potential has been stymied at the moment by elevated macroeconomic imbalances and rising policy uncertainty. Addressing these challenges promptly and forcefully will be important in the coming months.

Let me stop here and would like to just mention that our semi-annual regional economic outlook for Sub-Saharan Africa, which will discuss these issues broadly supported by some analytic studies also will be published on October 25. We'll be launching this in Cameroon and Yaounde and Nairobi on that day. Thank you for your attention and I'll take -- answer your questions. Thank you.

QUESTIONER: In your view, how deep is the Zambian problem and what is the outlook of the economy - going forward? And as you may be aware, Zambian government who undertake an IMF Program in rescuing the country's economy, how best should the government handle this so that the majority poor are not harmed severely?

QUESTIONER: What would you recommend to countries like, Nigeria, Cameroon and Chad that are faced with a terrible humanitarian crisis caused by the activities of Boko Haram terrorists which is draining their resources and preventing them from investing in infrastructure and even diversifying their economy? Finally, the situation in Africa is so tragic. There's poverty almost everywhere because of corruption and maybe fond ideas of slave trade. Do you think that Africa really needs a Marshall Plan at this point in time? Thank you.

MR. SELASSIE: Let me give you -- perhaps take these two questions first. On Zambia, it is indeed [true] that Zambia is one of the countries that although not an oil exporter, of course, heavily relies on cooper exports and the decline in cooper prices has been a very severe shock to the economy. This has been coupled -- with more domestic sources of pressure on the fiscal accounts, particularly, elevated spending in a number of areas. So, I think the government has recognized the need for adjustment. So, I think the roots -- perhaps, the -- the first order of priority is going to be putting in place a significant fiscal adjustment. This needs to be coupled and supported by monetary policy steps, of course. You know, a lot of the work we do and a lot of the advice that we do with countries, we try and pay heed to the effect that fiscal policy adjustment can have on the poor. So, very important aspect of our policy advice is to provide ideas, suggestions on how the tax rates can be made -- taxing -- tax adjustments are required and they can be made as progressive as possible. But importantly, adjustment programs are supported by safety nets that can help to minimize the impact on the poor.

One of the challenges in Zambia, I think, is going to be trying to address the significant subsidies there are - a few subsidies in particular. In general, subsidies tends to be very regressive, so it tends to take up a lot of budgetary allocation and the beneficiaries tend to be the more wealthier segments of society. So, I think there is a way to reduce the subsidy, eliminate the subsidy while putting in place protectionist measures for the people that will be impacted most and have much lower levels of income.

I think those are the two -- two-fold questions. Yes, I mean, as if the challenges caused by the commodity price decline, oil price decline for Chad, Cameroon and Nigeria wasn't bad enough. You also have parts of these countries being impacted by conflict. Of course, ensuring that there is peace and stability is the first order priority and resources are going to have to be devoted for that, but I think that there should also be ways of providing resources to address the challenges being caused by conflict in the overall context of the strong adjustment measures that all three economies need. So, it is an important allocation. It is an important priority and any work the government is doing on economic policies has to carve out resources for that.

You raised an existential question about Africa. I think that we should avoid generalization about what Africa needs. I think what is needed varies from country to country. So, it's a difficult question to answer. But as a whole, do some African countries continue to need aid, official assistance? Absolutely. Some countries need -- this assistance to be in the form of temporary type support. In other cases, for the poorest countries, you need more grants, concessional type financing. So, the support is needed, but equally important, I think countries building the revenue mobilization -- I mean, as I mentioned in my opening in my remarks earlier, I think countries developing their tax base is going to be imperative.

QUESTIONER: My question is about one of the general themes that the IMF is bringing to the table which is the rise in the west in Europe and the United States of this sort of populous sentiment which there is a concern that that could lead to an anti-globalization movement which could be damaging to trade links and everything else

Now, the EU and the U.S. actually do want to have more reciprocal trade with Africa, but many African countries say they aren’t ready to open up their borders as much to trade coming in. Probably because they don’t feel as if they can protect their own economies as much. They’re not as competitive.

But there is advice that’s being given to the continent as a whole about opening up those borders a lot more. So at this point, do you think it’s time for African nations to really consider changing the way that they do trade and making it more reciprocal?

QUESTIONER: Ghana has a three year program with the IMF currently. It has helped to cut down the budget deficit from 12 percent in 2012 to about currently 6 percent, and hope to reach 5.3 percent by the end of the year. But there are concerns of election related expenditures, to the elections. With less than two months to the elections in Ghana, have you seen any sign of election related expenditure or government overshooting its expenditures currently?

MR. SELASSIE: On trade policy, what kind of trade policy is desirable and the broader question of opening up. Again I think it’s a very broad question. Particularly with trade policy. There’s so much country specificity, so I cannot generalize.

But what I can say is that in many cases I think there is an asymmetric income, at least for the lowest income countries there remains more asymmetric trade agreements in terms of the globalization required, AGOA, Everything But Arms. I think the challenge for most countries, really, is trying to exploit these as much as possible under the current framework.

I see that as the biggest challenge and how can countries overcome? I think primarily by, promoting exports, improving competitiveness, addressing the infrastructure gaps that often raise and the cost of doing trade aboard. So I think that is probably an area of emphasis for the countries in the region.

On Ghana, the program, we just completed the third review about ten days or so ago. In terms of the data, fiscal data, the fiscal data was available, I think, through end of July for us at this juncture. And through the end of July what the data shows is very weak revenue performance, but spending being contained. So that the fiscal deficit outcome was as programed through then.

We don’t have any more data beyond, I think, end of July of end of August, and it’s difficult to forecast what’s going to be happening in the coming months. But we are encouraging, and this is all discussed very clearly in the staff report. We do highlight, that for this program to do what it’s been designed to do and what has been achieved so far it's going to be important to avoid the election year spending increases as we have seen in the past, that’s first.

The, second issue is to ensure that that is, indeed, the case and sustain the confidence we’re seeing in the market. I think it’s really important for the government to continue publishing data on a monthly basis as they have been in recent months, so we’re encouraging the government to strongly do that.

QUESTIONER: Two questions very short. One is how are the negotiations about the addition of the Mozambique accounts going and what are the terms of reference for that addition?

Second, the IMF delegation is going to Angola, I think, later this month. Since Angola has said that it does not want money from the IMF what will you be discussing? Thank you.

Let me start off by highlighting two countries in East Africa, that is Kenya and Uganda, which are soon going to join the bandwagon of countries that are oil exporters. Perhaps, as the IMF, what sort of prescriptions might you have? Because you’re now seeing the commodity crisis that has hit a number of West African countries. Perhaps, moving forward what would be your advice to these countries?

My second question is, going by your presentation, it appears that the narrative around Africa Rising is becoming dimmer. Does the IMF still hold this in terms of Africa being the next frontier for investment?

Lastly, I’m concerned about the developments in South Africa, Nigeria, and Angola and, of course, Ghana. Are they likely to have spillover effects in other economies in Eastern Africa? Thank you.

MR. SELASSIE: On Mozambique, we just had a mission recently to Maputo. The good news here is that there’s a good agreement between the government and the IMF on some of the key prerequisites for the audit. That is that there will be an independent audit undertaken of the loans that have been taken up by state owned enterprises, and that this audit will be made public. Will be published. So I think this is a very good understanding. We are going to wait to see how that evolves in the coming months.

Angola, it is, indeed, the case that the government has indicated that they’re not seeking a program. But we continue to have our Article IV policy dialogue with them, and the mission going next month will be holding discussion on the Article IV which is the usual surveillance discussion stuff we have with all members of the IMF. So that will be taking place starting next month.

Kenya, Uganda and prospects of oil production, I think the number one thing that you keep hearing from countries in West Africa, other oil exporters right now, is the importance of maintaining a diversified economy. Those countries are emphasizing that they wish they had much less reliance on oil exports. So I think that’s really the central lesson for Kenya and Uganda to maintain the diverse economic structures that they have and to minimize reliance on oil whether it be for fiscal purpose or export purposes. I think that’s a central lesson there.

On your question about overall outlook for Sub-Saharan Africa. As I mentioned earlier, we remain very optimistic about future growth prospects. I mean, we’ve seen over the last 15, 20 years a massive improvement in growth outcomes, and it’s not just about growth, but rather, this has also been accompanied by reduction in poverty, improvement in human development outcomes.

So there’s been a lot of progress provided that some of the larger economies, in particular, are able to overcome the difficulties that they’re facing we see that continuing. There are very important and underlying factors underpinning this growth. I think, to a large extent, it hasn’t just been about commodity prices.

For example, when commodity prices were high Kenya never benefited from that, right? So it’s just some countries that benefited from commodity prices and the (inaudible) countries that are being affected. The fundamental drivers of growth, having said, been all of the reforms countries have been pursuing over the years, the much improved business environment.

Looking ahead, I mean, there’s a big demographic transition that’s coming which, harnessed properly should also help propel growth. So we think the future is bright, but subject to very quickly addressing the macroeconomic imbalances that countries are facing.

Spillovers from Nigeria, South Africa, and Angola. Indeed, we are also worried about coming on two fronts. One is the immediate neighbors of some of these countries are feeling the pinch. I mean Benin is a relative to Nigeria. Benin is right next door and there’s a lot of informal trade that goes on between the border that has been affected, so there’s abetting on immediate neighbors, and this is just one example.

But the broader spillover that we see is, of course that there’s a tendency to see Africa through the lens of some of these big economies, unfortunately. When those three economies are not doing well, when the regional aggregate is lower there’s a tendency that that it raises risk premia, and just the sense that all African countries are not doing as well. So that’s another channel that we’re worried about.

QUESTIONER: I go through your reports about Ghana in terms of the outlook and you are very optimistic. I go through the Staff Report and there is an indication that the outlook can be good, but if you don’t do A, B, C, D things can be very bad for you. What are the other things that the government of Ghana should be doing to ensure that the expected benefit that we are looking for comes to pass?

Because there are still a lot of Ghanaians who are skeptical about this program turning things around. Even if the macro level there’s been some improvement, it’s yet to be felt at the micro level.

Also, what should be their policy approach? Not diversify, because I’ve this since I was young, and even about expanding the tax net, to ensure that the performance of the commodities of the international market. What should be the policy approach to minimize the impact on the economy?

QUESTIONER: First of all, Mozambique, sorry to take you back, but what are you doing, as the IMF, to make sure that you’re not hoodwinked into 10 percent of the GDP of Mozambique. Actually, if you’re looking at 1 billion U.S. dollars, it was a fiasco, and what are you doing, as the IMF, to make sure that this is not a case of déjà vu in the future?

The second question is energy subsidies. Close to 635 to 650 million Africans are living without a light. Much of the statistics and literature from the IMF does point at between 5 to 10 percent of many of these GDPs. These funds are actually being lost in energy subsidies. But is this a tradeoff that Africa can actually afford? Give us a sense of that. Thank you.

MR. SELASSIE: On Ghana, the numbers are optimistic. You know, I’m not so sure. I think our focus is always going to be conditional. It’s difficult to make an unconditional forecast because growth outcomes, we think, are related to policies.

So we do see that even in the face of the significant adjustment that’s been taking place growth has been in the order of 4 percent in Ghana. So, that’s somewhat encouraging. Going forward, we see a little bit of a pickup in growth to around 5.5 - 6 percent, I think, over the medium term.

I don’t think this is particularly optimistic given the recent growth record. We have seen elevated macroeconomic imbalances over the last few years, very high interest rates. That has manifested itself and having been one of the factors holding things back. So provided inflation can be brought down, real interest rates can be lowered. That should allow some recovery in growth. But again, this is all conditional on the government continuing the fiscal adjustment.

You talked about the macro versus micro. That the macro improvements have not translated into improvements for people. I think this is a challenge, frankly, region-wide where there is a lot of questioning about what all this growth done. I think the answer I can provide briefly is that it’s going to take -- it takes many years of sustained growth for the tangible benefits of growth to be seen.

I think over the years we have seen that. I don’t have the numbers for Ghana, in particular, at hand, but for the region as a whole we’ve seen over the last 15, 20 years that growth has been accompanied by a reduction in the poverty rate. But, for me, kind of an even more important indicator that I follow are indicators like infant mortality, maternal mortality, and other human development indicators which have all improved significantly.

I would guess that if there hadn’t been all this growth over the years I doubt that we would have these human development outcomes improving as much as they have. So there is a link, but it doesn’t always manifest itself linearly.

Mozambique, what are we doing to avoid being hoodwinked? This debt issue didn’t really hoodwink the IMF. It hoodwinked the people of Mozambique, so it’s not about us. We can only work with the data that’s provided to us, and we provide advice on the basis of that. So transparency in fiscal account, transparency in public policy making is first and foremost important for the people of the countries whom the governments represent.

Energy subsidies versus the tremendous need for infrastructure investment. First of all the energy subsidy levels vary from country to country. So, again, it’s very difficult to generalize. But where you have, indeed, significant government resources being devoted to energy subsidies I think it’s important to look at whether that is the more effective use of public resources that can be made, and whether some of those resources cannot be directed more towards addressing the tremendous power deficits the region has.

MR. K ANYEGIRIRE: We have a few minutes left, so I'll take I think three, four quick questions, please.

QUESTIONER: This is Africa, the Financial Times Group. A question about Zimbabwe. Just wanted an update in terms of what the current status is in negotiations with the IMF about debt clearance program there. I know that there was mission I was supposed to go in September, apparently that was cancelled, so what is the situation there and what will be required from your side, in order to carry talks forward.

QUESTIONER: That’s what I was going to ask about but I will add in there, whether you know anything about the fate of this $200 million facility that they were going to get from Afreximbank to issue their so-called bombed notes to cover the currency?

QUESTIONER: You stressed so much about the orderly adjustments, can you please expatiate on these related to the Nigerian situation, where we have been making adjustments for the past two years, and yet we've ended up with high inflation, more depreciation of the naira, and of course high interest rates. Thank you.

QUESTIONER: I mean, the IMF keeps calling for the liberalization of FX market, but we know that recently we have floated the naira which has seen the currency drop to -- drop significantly to lower levels. Now, what do you -- more do you want us to do as regards the FX market. Then do you think we still have the fiscal space to borrow more without running into national debt crisis?

MR. SELASSIE: Okay. Zimbabwe, in the case of Zimbabwe, there's really not a significant change in terms of our engagement, the mission in September was delayed for some technical reasons, not having to do with the overall structure of the dialogue. So there is not much new information I can provide, and update you there.

And sorry, I don't have any information on the Afreximbank loan either.

Nigeria, on the question of what is required to facilitate the reduction and imbalances - of course there was that adjustment in the exchange rate but what we see as the BDC rate begin much weaker, what we see being needed in very simple terms is really significant fiscal adjustment, I think that’s going to be very important, particularly on the revenue side.

I think taking measures to try and contain the fiscal deficit will be very important. And this has to be accompanied also by tighter monetary conditions than we are seeing. I think some of the continued weakness in the naira is coming from monetary conditions, perhaps not being as tight as they could be. So, I thinkin simple terms, this is what's required.

Of course this has to be accompanied by structural reforms both fiscal structural issues to try and improve the public finances over the medium term, but also a lot of the structural reforms that are needed to foster a stronger supply response in the country. One good thing for Nigeria is that the level of debt is not very high, so there is room to try and -- to pace the -- to have a more gradual adjustment, in the case of Nigeria, exactly, because there's scope to do some financing.

The issue here is to have in place a policy framework, to have in place a very credible one at that, that will allow private sector, other financiers to step in, to allow -- to give the time, the government the time to smooth the adjustment process.

So I think anchoring policies in their credible medium-term framework is going to be important, but important but important, also unavoidable and significant fiscal adjustment in the near term.

QUESTIONER: My question really is about, the IMF is on record indicating that Africa really needs to scale up investments in infrastructure, coming closer home to East Africa, is the IMF worried over the recent dynamics around the big-ticket projects where we are seeing Kenya is doing this railway that was meant to link with Uganda, and end out in actually Rwanda. We also saw the changing dynamics around the oil pipeline between Uganda and Kenya, it's now going to use the Tanzania route, perhaps. What's IMF's take on this geopolitical development really?

MR. SELASSIE: Yes, absolutely. I mean, in many of our countries in the region a binding constraint to growth is very high infrastructure cost or lack of the required infrastructure, such as the energy we talked about earlier, growth or travel networks. I don’t know what the rate of return on these projects are, what kind of analysis has been done, but I am sure that,any project that helps reduce the transaction costs for these economies will have a significant rate of return, and is worthwhile in and of itself.

The key is to aggregate all of these projects, and see what the implication that has for the fiscal stance, but as important, frankly, is a point I touched on earlier, is trying to capture the rate of return on these projects starting now. So, making sure that the appropriate user fees are charged to help pay back for the cost of these projects, and even, improving the tax base, that is, the taxes that countries collect.

This has been a perennial issue in some countries more than others, so a big part of our advice to countries that are growing robustly that are stepping up their investment and infrastructure is to also address -- to also raise more revenues. And this will help contain fiscal deficits and bear down on those deficits going forward. So I think there's a balance to be struck, and striking that balance is what we are calling for.

MR. K ANYEGIRIRE: Thank you.

If you have any questions, please reach out to me and Lucy.

MR. SELASSIE: Thank you.

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