Sub-Saharan Africa: Restarting the Growth Engine

IMF News, May 9, 2017

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Average growth slowed to 1.4 percent in 2016, the lowest in more than 20 years.
A modest recovery to 2.6 percent is expected in 2017.
These outcomes remain well short of past trends of 5-6 percent and would barely exceed population growth at current rates.
Some countries (Senegal, Kenya) continue to experience growth rates higher than 6 percent.

Commodity price shock: many countries, notably commodity exporters and oil exporters such as Angola, Nigeria, and the countries of the Central African Economic and Monetary Union (CEMAC), suffered substantial commodity price shocks.
Insufficient policy adjustment: delays in implementing critical adjustment policies have led to higher public debt, uncertainty, and reduced investment, increasing the risk of deeper future difficulties.
Non-commodity vulnerabilities: countries with limited commodity reliance (Cote d’Ivoire, Kenya, Senegal) have maintained high growth but carry high fiscal deficits, leading to rising public debt and borrowing costs.
External environment: recent improvements offer limited support; oil prices projected to stay far below their 2013 peaks.
Financing costs: financing costs for frontier economies in the region remain higher than for other emerging markets and could tighten further amid fiscal easing and U.S. monetary policy normalization.
Weather, pests, and conflict: drought and pest infestations are raising food insecurity in parts of southern and eastern Africa; famine has been declared in South Sudan and is looming in northeastern Nigeria due to conflicts.

Priority 1 — Macroeconomic stability
- Renewed focus on macroeconomic stability to set the stage for growth turnaround.
- For hardest-hit countries, fiscal consolidation is urgently needed to halt reserve declines and offset budgetary revenue losses, especially in the CEMAC.
- Where available, greater exchange rate flexibility and elimination of exchange restrictions to help absorb shocks.
- For countries with still-strong growth, address emerging vulnerabilities from a position of strength.
Priority 2 — Structural reforms to support rebalancing
- Implement structural measures to ensure a sustainable fiscal position and durable growth.
- Improve tax collection, strengthen financial supervision, and address longstanding business climate weaknesses that impede economic diversification.
Priority 3 — Strengthen social protection
- Reinforce social protection for the most vulnerable to prevent reversal of recent poverty-alleviation gains.
- Current social protection programs are often fragmented, not well-targeted, and cover a small share of the population.
- Reallocate savings from expansive and untargeted schemes (such as fuel subsidies) toward helping vulnerable groups.

Two background studies examine:
- The region’s experience with episodes of sustained growth and their drivers.
- The role of the informal sector in sub-Saharan Africa.

Source: Sub-Saharan Africa: Restarting the Growth Engine, IMF Country Focus, May 9, 2017.