Transcript of the October 2019 Annual Meetings African Department Press Briefing
IMF News, October 18, 2019
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- Published: October 18, 2019
Regional growth outlook
- Growth in Sub-Saharan Africa is expected to pick up:
- "around the 3.2 percent mark" for 2019.
- "rising to 3.6 percent in 2020."
- Relative to April, growth has been revised down for about two-thirds of countries this year, "albeit by a modest 0.3 percentage points for the region as a whole."
- Large heterogeneity across countries:
- Non-resource intensive countries (described as "this 24 or so non-resource intensive countries, home to about a half a billion people"):
- Expected to grow at "about 6 percent", "almost three times faster than the growth rates" in resource intensive countries.
- Will see per capita income "rising markedly faster than the rest of the world."
- Resource- or commodity-reliant countries ("these 21 countries"):
- Growth "is at around the 2.5 percent mark."
- In per capita terms, growth "remains lower than much of the rest of the world."
Downside risks to the outlook
- External risks:
- Rising protectionism.
- Potential rising risk premiums for international markets.
- Faster-than-anticipated slowdown in trading partners (examples cited: China, the Euro area).
- Domestic risks:
- Failure to implement fiscal policies as envisioned to help stabilize debt levels.
- Country-specific factors:
- Policy uncertainties holding back investment in some larger economies.
Policy strategy: three-pronged approach
- Near-term policy mix:
- Fiscal space is limited in many countries; "the room for supporting growth" mainly lies on the monetary policy side where inflation is below targets and growth is below potential.
- Build resilience:
- Strengthen public financial management to avoid debt sustainability problems and the buildup of domestic arrears.
- Balance investment needs with debt sustainability.
- Continue efforts to diversify economies to reduce reliance on commodity exports.
- Inclusive, labor-intensive growth:
- Ensure growth remains labor-intensive to create jobs for millions entering the labor market annually.
- Reforms to facilitate implementation of the AFCFTA now that it has been ratified by most countries.
- Facilitate competition between firms to raise growth and improve welfare (analytical work in the Regional Economic Outlook highlights significant potential).
African Continental Free Trade Area (AFCFTA) and intra-African trade
- IMF assessment:
- AFCFTA described as "one of the most exciting policy developments across the region."
- Analytical work (April Regional Economic Outlook) shows "tremendous potential" to facilitate higher economic growth and diversification toward manufactured, processed goods traded intra-Africa.
- Implementation challenges to realize gains:
- Tariff reduction per the agreement plus removal of non-tariff barriers.
- Address infrastructure constraints that hamper trade.
- Estimated impact on intra-Africa trade:
- Trade would be increased "by at least -- close to, between 16 and 20 percent, or so, as a result of the AFCFTA."
- Additional gains possible when accounting for shifts toward manufactured goods and value-added trade.
- Distributional concerns:
- Risk that larger economies may dominate; policy measures needed to support sectors and regions that may face dislocation.
- Competition with external partners (e.g., China, Europe) also a consideration.
Trade tensions, global slowdown, and supply-chain shifts
- Conjunctural impact:
- Africa has been affected by the global slowdown in trade volumes; softness in exports contributed to lower regional growth.
- Medium-term opportunities:
- Early signs of relocation of low-skill manufacturing to parts of Sub-Saharan Africa (example cited: Ethiopia and some coastal eastern seaboard countries).
- The pace depends on how quickly Asian countries move up the technology ladder and how rapidly African countries attract capital.
Debt, financing, and China
- IMF stance:
- China is a "very important development partner" for many Sub-Saharan African countries.
- IMF concern centers on overall debt levels and the sustainability of borrowing regardless of creditor.
- Key issues:
- What the borrowed funds are used for (ability to capture rate of return on infrastructure, health, education investments).
- Striking a balance between development needs and avoiding debt unsustainability.
- IMF engagement modalities:
- Programs with financing where requested.
- Policy advice to all countries.
- Capacity development, including debt management, on request.
Country cases and specific issues
- Nigeria:
- Slow growth despite policy initiatives; implementation of the ARGP and policy reforms is critical.
- Need to increase non-tax revenues to fund infrastructure, education, health; non-tax revenues remain "very low at 7/8 percent" in the country.
- Monetary policy: inflation dynamics discussed in context of Nigeria; IMF referenced "11.7 inflation rates by 2020" in the question and attributed inflation drivers to adjustment to lower commodity prices, exchange rate shocks, and food-price related shocks. Recommended continued central bank efforts to bear down on inflation and allow gradual decline.
- Poverty and inequality:
- Large within-country variation in poverty and social outcomes; region-specific interventions and higher overall growth needed.
- Diversification away from oil, better business environment, and more resources for infrastructure, health, education are priorities.
- Mozambique:
- Hidden debts over $2 billion led IMF to require three elements before re-engagement:
- Explanation/audit of the debts and transparency (audit has been completed).
- Restoring debt sustainability.
- Agreement on a program with supporting policies.
- IMF provided emergency support after Cyclone Idai and continues policy engagement; no outstanding request for program engagement at the time of the briefing.
- Cabo Verde:
- IMF spokesperson was "not aware of the transaction" referenced regarding hidden debts of 65 million and said they would try to find out.
- Ghana (banking sector clean-up):
- Costly financial sector clean-up (nearly 12 billion Ghana cedis; collapse of about seven banks) underscores importance of strong supervision and real-time regulation.
- Not cleaning up the sector risks even higher eventual fiscal and economic costs.
Regional monetary integration and insecurity
- ECOWAS common currency:
- Leaders and the ECOWAS commission have set out preconditions (including convergence criteria); IMF encourages following the laid-out steps and conditions.
- Xenophobic attacks and insecurity:
- Recognized as a serious challenge with risk of spillovers and loss of life; policing, containment, and improved mutual understanding are needed to prevent escalation and protect trade relations.
Climate change, natural disasters, and resilience
- Recent climate shocks cited:
- Cyclone Idai and Cyclone Kenneth.
- Drought in Southern Africa affecting countries like Zimbabwe and Zambia.
- Desertification in the Sahel and population movements linked to climate pressures.
- IMF role and priorities:
- Provide rapid support in the aftermath of shocks.
- Support policies and investments to build climate resilience and more climate-resilient state capacity and infrastructure.
- Encourage countries to pursue investments and policies that increase resilience while balancing debt sustainability.
Health, pandemics, and preparedness
- IMF role:
- Not a health specialist, but works to ensure countries have resources to invest in health systems, education, and infrastructure.
- Past experience: support to Liberia during the Ebola outbreak; countries with stronger health systems (e.g., Nigeria) were better able to contain outbreaks.
- Policy priority:
- Upgrade health service provision and state capacity so economies are more resilient to pandemics.
- Ensure sufficient fiscal resources through taxes and borrowing to fund health investments.
Monetary and fiscal policy calibration under external headwinds
- Fiscal policy:
- Limited fiscal space in many countries; priority on stabilizing debt levels.
- If severe global slowdown materializes, IMF would consider recalibrating fiscal plans (e.g., delaying planned adjustments by a year or two) while ensuring medium-term debt reduction.
- Monetary policy:
- More room in many countries on monetary policy as inflation trends have generally declined; use monetary policy where appropriate to support growth.
Miscellaneous statistics, events, and recommendations
- Conference announcement:
- IMF, together with the government of Senegal, will host a conference on Sustainable Development, Sustainable Debt, on December 2nd in Dakar, aiming to identify policy proposals to balance development needs and avoid debt vulnerabilities.
- Key quantitative figures preserved from the briefing:
- Growth projections: "3.2 percent" (2019), "3.6 percent" (2020).
- Regional revision: "0.3 percentage points" downward for the region as a whole.
- Non-resource intensive growth: "6 percent".
- Resource-intensive growth: "2.5 percent".
- Number of resource-intensive countries: "21 countries".
- Description of non-resource intensive grouping: "this 24 or so non-resource intensive countries, home to about a half a billion people".
- AFCFTA trade uplift estimate: "between 16 and 20 percent, or so".
- Nigeria non-tax revenues: "7/8 percent".
- Reference to "11.7 inflation rates by 2020" as cited in the briefing exchange.
Transcript of the October 2019 Annual Meetings African Department Press Briefing, IMF Communications Department, October 18, 2019