Transcript of African Department Press Briefing

IMF News, April 21, 2018

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Published: April 21, 2018

Regional growth outlook and recent drivers

Growth is projected to pick up from 2.8 percent in 2017 to 3.4 percent in 2018.
Recovery is fairly broad-based: two thirds of the countries in the region seeing growth accelerating in 2018.
Several economies (Cote d'Ivoire, Ethiopia, Senegal, Ghana) are growing robustly with growth of six percent or more.
At the other end of the spectrum, countries that are home to one third of the region's population saw their per capita income fall in 2017 and most of these countries are expected to witness a further decline in per capita income in 2018.
The pickup in growth has largely been driven by:
- Stronger global growth,
- Higher commodity prices,
- Favorable financing conditions (including a record amount of Euro bond issuances in the first quarter).

Debt vulnerabilities and external positions

Public debt ratios in the region are on the rise.
About 40 percent of low income countries are now in debt distress or assessed to be at high risk of debt distress.
About half of the countries in debt distress or at high risk are resource-based economies affected by the largest real oil price decline since 1970.
External positions have strengthened somewhat due to global developments and improved policy frameworks.
Medium-term growth outlook: average medium-term growth is expected to plateau below four percent, falling short of levels envisaged five years ago and below what is needed for progress consistent with the sustainable development goals.
Significant risks: the favorable external environment could fade and borrowing terms for the region’s frontier markets could tighten; elevated security risks especially in fragile states impose economic and human tolls.

Policy priorities to secure stronger, durable, inclusive growth

Overall approach: seize current favorable external conditions by taking domestic policy steps to reduce macroeconomic vulnerabilities and raise medium-term growth potential.
Three priority policy areas highlighted:

1. Fiscal policy and macro stability

Need to balance debt sustainability and adequate space for key infrastructure and priority social spending.
Advice is tailored country-by-country:
Oil-exporting countries: continue to forcefully implement fiscal consolidation plans and advance economic diversification, using the respite from higher commodity prices.
Oil-importing countries: reduce fiscal imbalances, accelerate reforms, and facilitate the private sector taking over as the engine of growth.

2. Stronger tax revenue mobilization

Central to addressing debt vulnerabilities is stepping up revenue collections.
Sub-Saharan Africa continues to have the lowest revenue to GDP ratio.
According to IMF work cited, countries in the region could mobilize "between there to five percentage points of GDP and additional tax revenues in the next four or five years."
Measures to achieve this include strengthening VAT systems, streamlining exemptions, and broadening tax bases.
Country-specific example: Nigeria’s tax-to-GDP ratio is below five percent; the IMF notes the priority of raising it to 10 or higher (and cites an average tax-to-GDP ratio around 15 percent in many other countries in the region).

3. Structural reforms to raise private investment

Private investment in the region has been below every other region in the world despite public investment levels similar to other regions.
Policies needed: create a sound business environment, strengthen regulatory and insolvency frameworks, deepen access to credit.
Trade integration (e.g., the African Continental Free Trade Area, CFTA) can boost intra-African trade and income if fully implemented.

Infrastructure financing emphasis:
- With rising public debt, priority should shift toward mobilizing private investment and domestic resources (revenue mobilization) to meet infrastructure needs.
- The IMF focuses on macro framework and balance—how to make room for development spending without unsustainable debt buildup.

Country-specific assessments and engagements (high-level)

Mozambique
- IMF continues Article IV engagement; audit has been done but information gaps remain and need to be filled before resuming program engagement.
- IMF’s view: Mozambique is classified as being in debt distress or on an unsustainable debt trajectory; like all members, it is eligible for program discussions but there is no outstanding program request.
Angola
- Government requested non-financial support via a Policy Coordination Instrument (PCI); IMF welcomed the request and will send a team for diagnostic work.
- IMF noted Angola’s comfortable reserve levels and sovereign wealth fund resources; a PCI may be appropriate given the current balance of payments assessment.
- Policy priorities likely to include macroeconomic reforms, economic diversification, product market reform, public finance management, transparency, and revenue strengthening.
Nigeria
- IMF underscores need to raise tax-to-GDP ratio (currently below five percent) toward 10 or higher to meet infrastructure and social spending needs.
- Monetary and exchange rate developments: situation has improved from a few years ago (narrowing between official and parallel markets, decelerating inflation); IMF favors a move toward a more simplified/single exchange rate regime to support monetary policy and deepen FX markets.
- Concern for Nigeria focuses on debt service capacity rather than a high debt-to-GDP ratio (debt-to-GDP cited as well below 20 percent).
Zimbabwe
- Clearing arrears with multilateral creditors is a step toward IMF engagement; IMF stresses the need to understand the debt picture and agree on a program to restore growth and reduce informality.
State-owned enterprises and guarantees
- IMF notes that in some countries SOE liabilities and guaranteed debts have migrated to the public balance sheet, contributing to higher public debt.
- Circumstances vary across countries; addressing revenue mobilization and fiscal deficits remains the primary policy focus to improve debt sustainability.
ECOWAS single currency and regional initiatives
- IMF awaits clarification on the proposal to launch a single currency by 2020 before commenting on implementation and impacts.
- IMF strongly welcomed the CFTA agreement reached in Kigali and views full implementation coupled with reducing non-tariff barriers and improving infrastructure as supportive of deeper intra-African trade and diversification.

Governance, transparency, and program safeguards

IMF emphasizes public finance management reforms, greater transparency, and accountability to ensure funds are well used and to tackle corruption.
The IMF Executive Board recently approved a framework to address governance and corruption issues; the document is noted as launching soon.

Social and human capital priorities

IMF highlights the role of private sector led growth and quality education in creating jobs for youth and reducing social discontent.
Human development improvements cited: increases in life expectancy and sharp improvements in infant mortality indicators over the past 20–25 years are noted as progress linked to stronger growth and macro policies.

Publications and follow-up

IMF regional semi-annual economic outlook for sub-Saharan Africa will be published on May 8, with launch events in Libreville and Accra.

Transcript of African Department Press Briefing — April 21, 2018, IMF Communications Department.