Transcript

Transcript of October 2021 African Sub-Saharan Press Briefing

October 21, 2021

PARTICIPANTS:

ABEBE AEMRO SELASSIE

Director, African Department, IMF

ANDREW KANYEGIRIRE

Senior Communications Officer, IMF

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MR. KANYEGIRIRE: Good morning. Good afternoon, for those joining us from Africa. I hope that you're all keeping well. My name is Andrew Kanyegirire. I'm with the Communications team here at the IMF. Thank you for joining us for this virtual October 2021 Annual Meeting's press conference on the Regional Economic Outlook for Sub-Saharan Africa. I am here with Mr. Abebe Amero Selassie, the Director of the African Department here at the IMF. He will give brief opening remarks after which we shall turn to your questions, and thanks to those that have already sent in questions. We shall also be checking for your questions on WebEx and via our press center. You can also view and listen in via our various social media sites: YouTube, Twitter, LinkedIn, Facebook, and our website as well.

The report, our press release, Abe's opening remarks, are all available under embargo and they should also be on our website as of now. Abe, over to you.

MR. SELASSIE: Thank you. Good morning. Good afternoon from my end. Thank you for joining us for the release of the October Regional Economic Outlook for Sub-Saharan Africa.

The pandemic has shown us the deeply interconnected nature of our planet. Global challenges such as ending the current pandemic or addressing climate change require global solutions. The path to addressing both these major challenges on a global scale runs directly through Sub-Saharan Africa. Before taking your questions, I would like to draw on our latest assessments of the economic outlook, challenges, and immediate policy priorities. But before delving into that, I would like to first take a moment to reflect on how the region is contending with the ongoing pandemic. The global health crisis has revealed two very different realities. What has emerged is two worlds. One mainly of the most advanced economies where recovery continues apace, fueled by a plentiful vaccine supply. The other in vulnerable emerging and developing economies where differences in policy space and the slower vaccine rollout is slowing progress.

Since April when we last updated our Regional Economic Outlook, Sub-Saharan Africa has been hit by a third wave of the pandemic, this time with the more contagious delta variant with infection rates often rising to triple, quadruple the rates that we've seen in earlier waves. Thankfully, this wave has now eased over the past month or so, but there is little reason to believe there won't be repeated waves going forward.

This is also because vaccination efforts in Sub-Saharan Africa have been slower than other regions, due mostly to stockpiling by advanced countries, export restrictions by major vaccine manufacturing countries, and additional demands for booster shots that we're seeing in advanced economies that could further compromise supply.

At the moment, only around 3 percent of the population of Sub-Saharan Africa has been fully vaccinated, in sharp contrast to most advanced economies that are close to the 60 percent or more level of vaccination.

Lockdowns have been the main option for containing the virus when there have been outbreaks in the absence of vaccinations, and although recent lockdowns have been less severe than those in early stages of the pandemic, their cumulative impact on economic activity and confidence has remained significant.

Now, turning to the economic outlook for the region, we estimate that Sub-Saharan Africa's economy will grow by 3.7 percent this year, and 3.8 percent in 2022. The recovery is being supported by favorable external conditions on trade and commodity prices. It has also benefitted from improved harvest and increased agricultural production in a number of countries, and the recovery of course follows the sharp contraction in 2020 and is of course very much welcome. Still, it represents the slowest growth relative to most other regions of the world. For example, advanced economies are projected to return to their pre-crisis paths of economic activity by 2023.

The pandemic, however, looks to have durably lowered the path of real GDP in Sub-Saharan Africa, suggesting a loss of real per capita income of close to 5.5 percent relative to the pre-crisis path. This divergence reflects Sub-Saharan Africa's two factors. First, the slow vaccine rollout, and second, stark differences in policy space.

Against this backdrop, I want to highlight three areas where concerted action is needed by policy makers in countries, and indeed, the international community.

The first of these is inequality. The pandemic has thrown some 30 million people back into extreme poverty, and has worsened inequality not only across income groups, but also across several national and geographic regions within countries. Moreover, conditions are set to be exacerbated further in many cases by the pronounced rise in food and fuel prices that we are seeing now. Lower incomes and rising food prices are a recipe for further erosion of past gains in poverty reduction, health outcomes, and improved food security. Policies need to be squarely focused on addressing this challenge. Left unaddressed, it will be a further source of misery to people and indeed, rising political and social insecurity.

Second, policy makers in Sub-Saharan Africa need to navigate an increasingly difficult and complex policy environment. Against the background of a weaker than expected growth, policy makers need to navigate among three formidable pressures:

• pressing spending needs to address the many social and human capital and infrastructure needs we face.
• limited borrowing capacity given the already high public debt levels in most cases, and
• the time-consuming and politically difficult nature of mobilizing tax revenues.

How deftly countries navigate this trilemma, as we've been calling it, will have a huge bearing on the macroeconomic wellbeing of countries as well as economic growth prospects.

The third challenge is the divergent health, poverty, and economic outcomes that we have seen requiring pointing to the critical importance of international solidarity and support.

• On COVID-19, the threat of new variants highlights the need for a global response with a particular focus on the unvaccinated people of Africa. The IMF has proposed a plan to vaccinate at least 40 percent of the total population of all countries by the end of 2021, and 70 percent by the first half of 2022. For Sub-Saharan Africa, these goals are ambitious and will require a marked change in strategy by both advanced economies and Sub-Saharan African countries.
• More broadly, significant external concessional financing is needed to limit and eventually close the divergent recovery paths of Sub-Saharan Africa and the rest of the world. Without this financing, the divergent recovery paths could harden into permanent fault lines, jeopardizing decades of hard-won progress. International organizations and donors have mobilized swiftly to support the region over the last year, but much more multilateral action still is critical considering the region's elevated financing needs.

Action is also needed to ensure that available mechanisms for debt restructurings are nimble and effective to avoid the burden of adjustment falling on the poor and the facilitate quicker economic recovery.

For its part, the IMF, more than ever, remains committed to supporting Sub-Saharan Africa tackle the broad array of challenges it faces. The most recent way in which we have done so is the recent general SDR allocation, which has boosted the region's reserves, easing some of the burden on authorities as they guide their countries' recovery. And much work is also underway to re-channel SDRs from countries with strong external positions to countries with weaker fundamentals to further bolster the region's resilience.

In our view, Sub-Saharan Africa's vast potential remains undiminished. Over the next three decades, the global population is set to grow by about two billion people with about half of that increase coming from Sub-Saharan Africa. This presents a huge opportunity. A growing pool of human talent and ingenuity that will have a telling effect on the economic, social, and political trajectory of our planet. We need to pay more attention to this phenomenal opportunity. Thank you.

QUESTIONER: Thank you very much. During the last conversation that we had on, you spoke at length about the trilemma and the policy complexities of countries that are grappling with it. In your assessment, what is the state of play six or so months down the line, are we navigating it on the path that you would think is ideal? Or how would you assess how the situation is evolving across the region?

MR. SELASSIE: As always, it's important to not overly generalize because countries' circumstances differ across the region. But I would say that we are about the same as we were in April. Indeed, in some countries the situation is a bit more difficult given that we hadn't fully expected a third wave earlier in the year, so that has complicated matters and slowed economic activity in a number of countries. As such, the pressure, and the need for pursuing the reforms that we've talked about in the past is alive in the vast majority of countries.

Now, what are these reforms? They are very country-specific of course, but I would argue that they fall into three broad areas. I think the first one is that even before the pandemic, we saw a pressing need for countries to mobilize more revenues instead of using debt financing, using tax revenues to address the many spending pressures that countries face. I think that need is even more pressing now given that debt levels have gone up and spending pressures are even higher than before the pandemic - so I think is an area where quite a bit of attention is going to be needed. Now, what exact tax policy changes are going to be needed is country-and context-specific, but of course, something that requires deep domestic and internal political discussions, but I think that having a clear road map on how revenues can be mobilized over the medium term is going to be very important in an increasing number of countries.

Second, prioritizing spending will also be very important. There are some difficult trade-offs on this one. One thing that I would highlight is, inequality which as we have seen has been going up. Pressures are going to be a lot more in the coming months - from higher food prices in some countries, higher fuel prices in other cases, and a lot more focus on social protection. This includes focus on trying to make sure that there is no excessive scarring, such as kids having had their education interrupted and what we can do to spend more to make sure that they can recover their education gains. That kind of a focus is going to very important.

QUESTIONER: My questions are around the focus that has been made for Botswana with growth being noted at 9.2 percent for 2021. The IMF believes that Botswana's growth will be the highest in Sub-Saharan Africa. We just wondered if you could possibly share your insights into how you came up with that figure. What do you think will be driving growth and where are you weighing the risks, upside, or downside for 2021?

MR. SELASSIE: As you know, Botswana was hit very hard by the pandemic last year and there is an element of a bounce from that very significant contraction that the economy faced last year, which is leading to the very high number. There are a number of one-off factors that will contribute to the very high growth that we are seeing. This high growth is good, and it is something to be grateful for, but I think over the medium term we will see growth reverting to the pre-crisis path, which is of course considerably lower than the 9 percent that will be registered this year. In terms of risks to the outlook, in Botswana's case, a lot is going to depend on the reforms that are being pursued by the government.

Pre-crisis an important policy agenda item was economic diversification away from relying on diamonds to broadening sources of economic activity that could bolster growth and revenues. I think that agenda is something that will need quite a bit of attention against social protection. In addition, strengthening human capital is also going to be a very important part of the policy agenda. Subject to progress in these areas, there should be an upside to the growth path that we are re seeing in our projections.

QUESTIONER: Thank you for taking my question. It seems to me that the picture you are painting is actually a very bleak picture. On the one hand, you have sub-Sharan Africa growing, the region’s economy is growing far below the global average this year, and on the other hand you have debt, and you have financing $250 billion needed in the next five years. These dynamics are happening at the same time as the population is growing and the vaccination rate in Africa is low. My question is, how do we navigate it? It seems to me that we need more than just all this normal reform. Maybe we need something like a Marshall Plan or something. How do we navigate all this, the debt, the vaccination, and you know, the bleak picture that you just painted?

MR. SELASSIE: Let us not forget that this is a completely exogenous shock that has unsurprisingly impacted our people and our economies quite significantly. But I think it's important to disentangle, the structural issues from the more temporary factors as we look to thinking about how a new development paradigm and new development agenda for our region. I think, there's no doubt as you mentioned the need for a Marshall Plan. There is no doubt that there is going to be need for significant external financing, but I would argue that it has to be accompanied by reforms. Domestic reforms that are needed to alleviate the constraints on growth and the constraints on investment by domestic investors in particular. Identifying and alleviating those will be very important.

Second, as you know, the reforms in the fiscal policy space will be important. I mentioned earlier the need for tax mobilization. But on the spending side, reprioritizing spending, making sure that the limited resources governments have go to projects with the highest rates of return is going to be imperative. Making sure that there is no leakage from government spending is also another very important reform agenda before the crisis and even more important now. So, addressing these will also be important. I'm emphasizing here reforms, because I think there's a tendency to think that our countries and our policy makers don't have agency and a strong recovery is going to only be possible by external financing or a Marshall Plan. I think we saw our countries enjoying a period of 15 to 19 years of strong growth from 2000 until the pre-pandemic in many cases. There's no reason not to think that that period cannot be repeated given all the potential that our countries have.

So, in sum, yes, the region is going through a difficult period. Yes, the crisis has exacted a heavy toll on our countries, but subject to reforms. I am very certain that a strong recovery will be at hand.

QUESTIONER: In the Outlook Report you mentioned that Nigeria’s remittance dropped by 28 percent and you did mention that African’s remittance is expected to increase. Do you also see Nigeria’s remittance increasing considering the policies that have been put in place in the country in recent times?

MR. SELASSIE: I think all remittances - in terms of what explains why - have declined. I would argue two factors. I mean one, of course, is the economic conditions, particularly last year and through the earlier part of this year especially in many of the advanced countries and other countries where expatriate Nigerians are and send money back have not been very good. So, it’s not surprising that remittances might have dropped.

So, that’s one factor; but a second factor, I think, is the uncertainty in the foreign exchange market that has prevailed in Nigeria over the last year. I don’t think that it has been very conducive to remittances flowing as much as they were before or, indeed, being captured by the official financial sector. So, I think that has been a second factor. Going forward, as long as the reforms on the foreign exchange market that are required to try and make sure that the country moves through having a single, unified foreign exchange market can take place, then this will help reduce uncertainty and it will increase confidence and allow more remittances to flow and be captured by the financial sector. I think that’s going to be a very important contributor. And so, the extent to which remittances we see being recorded increases will partly depend on this as well.

QUESTIONER: What explains after three years of a financial aid package with Angola the country has not been able to restart its economic growth? And on Equatorial Guinea, can you provide an update on the recalibration of the EFF, Extended Fund Facility program that was set up in December 2019?

MR. SELASSIE: On Angola, when the program started in - I think it was 2018 - nobody expected the pandemic and the awful consequences it would come to have. So, in terms of the reforms that the country needed to do, the country needs a lot of credit for having persisted with that; notwithstanding the incredibly difficult toll that the pandemic has exacted on Angola’s people and indeed, its economy. This of course also includes the big slump in oil prices for much of the past year and a half.

I think credit should go to the country because despite this monumental shock, they persevered with their reforms and they are now kind of coming out of the other side having taken significant steps towards reducing microeconomic imbalances and positioning the country to benefit from the global recovery in oil prices that we are seeing at the moment. Growth remains weak, indeed. The third wave in Angola was particularly severe. Again, that wasn’t something that we had anticipated in our projection which is why we advised growth down. But, subject to the pandemic waning and the global recovery that we are see persisting, we are confident that Angola will be able to enjoy the fruits of all the reforms that it has been doing over the last couple of years, including in terms of improving transparency in public financial management, improving the conditions of the financial sector and many other related reforms.

Turning to Equatorial Guinea. The Extended Fund Facility which was approved at the end of 2019 was impacted by the pandemic in terms of its implementation. The country has weak implementation capacity and that was compounded by the facts of the pandemic making it difficult to, of course, bring in some of the capacity development and other exercises that were needed to continue to improve public financial management.

More recently, the country has also been hit beyond the pandemic by the awful explosion in Bata, which exacted a huge toll on many lives in the country. We have provided some financial relief through emergency financing to tie things over, but right now, we are in discussions to go back to the reform program by completing all the structural benchmarks and conditions that are going to be needed to take the country forward. The government has remained very committed to these reforms and we are hopeful that they can implement them so that we can continue to support them.

QUESTIONER: In the latest report, you list 21 countries on the continent as being expected to grow about five percent and so the continent is on the spotlight again. There’s renewed interest from the U.S., the EU, and other advanced and emerging economies due to competition with China. As such, what are some of the bold transformative actions that African policymakers can take to encourage growth in some of the other countries that are not growing as fast as the others? What should policymakers be doing to lock in the much-needed sustainable economic growth across the continent?

MR. SELASSIE: I think this is a good opportunity to discuss and bring focus to the many countries in the region that are, indeed, continuing to enjoy robust growth. As you know, there are many countries like this -- I mean we discussed a moment ago Botswana, but also countries like Rwanda, Cote d’Ivoire that are enjoying growth not too far below the pre-crisis levels of growth. And, again, this speaks to not just the potential of our countries but also to the resilience that they often exhibit in the face of shocks. So, in those countries where growth has recovered close to or back to pre-crisis growth trajectories - and there’s a good40 percent or so of countries in the region - what is important is to begin to move away from the very supportive monetary policy, fiscal policy stance that has been pursued over the last year to more sustainable policy positions over the medium term that are consistent with medium term macroeconomic stability and sustainability, that would be very important. Over the last year, a very supportive stance has been needed to make sure there is a strong recovery and that there is enough support for our people. But now, making sure that in a gradual way that support can be recalibrated will be very important.

Second, to continue growing at 5-6 percent, the upgrading of institutions and industries is going to be important to keep pace with the need to deal with all the changes that are likely to take place. Post pandemic, countries are going to be rethinking supply chains and the main drivers of economic activity going forward. Continuing to reflect on that and preparing country specific plans on how to keep pace would be very important.

I want to also say a little bit though about the countries that are not growing as fast. I think in the main, this tends to be the commodity exporting countries. What we are seeing is the fact that they have a very narrow economic base. And last year, the decline in commodity prices was severe and it came on top of three to four years of very weak commodity prices which has stymied and reduced investment in production capacity in those countries.

What we are also seeing in those countries is that despite the recovery in commodity prices, they are not able to benefit very quickly from the higher commodity prices. And so, growth is remaining anemic because production cannot bounce back as quickly. As such, the needed investment over the last three to four years has not taken place.

For these countries there is a balancing act to be made. Of course, you have all these important industries that contribute so much to activity and so much to revenue that you need to make them as efficient as possible to see that they will contribute as commodity prices recover. So that's an important consideration.

As importantly, however, of course is the continuing need to diversify economies away from excessive reliance on these narrow commodities. Striking that balance will be critical to making sure that you have a resilient economy and making sure that you have durable growth over the medium to long term.

QUESTIONER: Would you mind commenting on the debt restructuring that is going on with many African countries with their creditors? And would you like to give a special particular emphasis to Ethiopia because there are talks going on with Ethiopia's creditors. I am particularly interested to know whether or not the Ethiopian authorities have submitted their financial plan to the financial committee co-chaired by China and France. And one last question. Can you explain why the IMF skipped projecting GDP growth for 2022 which is quite unprecedented. Because, I have been covering the IMF since the mid-1990s and I have never seen IMF doing that.

MR. SELASSIE: On debt restructuring in the region, what we have been seeing of course is an increase in the number of countries that are facing debt pressures. Given the scale of the pandemic, there has been a hit to our countries' economies. We saw countries like Zambia which before the crisis was already in quite a bit of difficulty being tipped over into a very clearly unsustainable debt position and requesting for debt restructuring. Chad is another case where they had to approach creditors for restructuring. Ethiopia is also in need of debt reprofiling and has sought restructuring via the Common Framework.

I think all three cases are at different stages of proceeding. Let me say a little bit about Zambia. We are discussing a new program with them and we are hopeful. Hopeful that we can field a mission in the coming weeks where we can agree on the parameters of a program. And that will help facilitate restructuring both with official and private creditors as soon as possible. This is a country that needs the official sector support and the involvement of the private sector as quickly as possible.

In the case of Chad, the restructuring is really at a very frustrating point for the people of Chad. I have to say that the official sector has provided the required assurances for us to proceed with the disbursements. As we move forward, the World Bank and other official supporters of Chad would also be able to provide much needed financing.

However, the private sector has not provided us with assurances that they will engage in restructuring with the Chadian authorities in the coming weeks in good faith and consistent with Chad's capacity to repay. We have been waiting since the summer on Chad's private creditors to come up with this commitment. As you know, the situation has become very serious. This is a country which is on the verge of a major food insecurity challenge. Rainfall, I understand from the Minister has been as low as levels that were last seen in the mid-1980s, which if you remember was associated with a very difficult drought in much of the Sahel. So, the situation in Chad is very serious and we are very frustrated at not being able to move forward with the financial support that Chad requires on account of the country's private creditors not providing the much-needed financing assurances.

Coming to Ethiopia, as you would know that I have to recuse myself on matters related to Ethiopia. I am going to ask the communications team to reach out to the staff team and they will provide answers. The staff team did, however, ask me to anticipating questions on the GDP projections and they asked me to convey that the reason why we didn't show numbers for the medium term are on account of two factors. First, extremely high degree of uncertainty at the moment on economic prospects going forward. This is not unusual. We have done this before including for countries like Lebanon. A second consideration is also the fact that the government has requested support for a new program with the IMF and those discussions are yet to begin. So those are the two factors and reasons for not showing the numbers This is not unprecedented and we have countries like Argentina and Lebanon, for these two reasons, where we have not shown grown projections.

QUESTIONER: I will ask two questions and you can play it as you will. I wanted to know what the IMF thinks may be the economic implications that the International Court of Justice decision on the Somalia-Kenya maritime dispute.

And secondly and I hope you'll answer this one as I have asked the IMF a lot over the year about Cameroon. I know that you engaged with civil society about some COVID spending irregularities. And I just wanted to know, I see the program is being announced, but has there been follow up on the listing of beneficial owners, the conflict in the Anglophone areas and those issues.

MR. SELASSIE: On the Somalia-Kenya border dispute really, I have nothing to add to that.

On Cameroon, I think one of the main things we've been trying to do over the years in program engagement and discussion with country authorities in the region, has been to increase transparency and public accountability as much as possible. It's not an easy undertaking.

There are both technical and political reasons as to why this cannot happen as quickly as possible.

Fast forward to the pandemic and as we were disbursing much needed financial support. When revenues were collapsing, spending needs were going through the roof and countries did not have the financing space, the fiscal space to meet these pressing needs, we were disbursing relatively quickly.

We took even more steps to make sure that our mechanisms in which transparency could be enhanced even more. Under regular programs, we can follow up through program reviews. But when we were disbursing rapidly up front, we felt that it was imperative that we had these additional measures. So last year, in virtually all of our rapid emergency support and our financing endeavors, we have asked countries to spend the money but keep the receipts. The purpose of this is, basically the money can go towards supporting your people, but there's also needs to be accountability. Among the steps that we've been asking countries to take, first and foremost are audits to show where the money went.

Second, to show that the companies that are contracting, that are making bids, we understand who the beneficial owners of these companies are. These reports are now being prepared and being publicized. We are going to hold countries to live up to these commitments and are following up diligently. In all cases there are delays of course. Sometimes we will hold up program discussions, but if the delays are for legitimate reasons--because it has not been possible to get auditors to do the audits as quickly as possible—then we will try and be pragmatic.

So, for Cameroon as elsewhere, we will follow up and the aim of all this work is to promote transparency, to show irregularities where there are irregularities with the expectation that the accountability institutions internally will hold to account should they identify any misappropriation of resources.

What we are trying to do here is bring as much sunlight as possible to public finances and we will expect and hope that accountability institutions do their part where there are difficulties.

QUESTIONER: What is the impact of the growing insecurity in some parts of the continent: the Sahel, Nigeria, Mozambique, the eastern part of the DRC? What impact does that have on the outlook? What progress has been made in terms of the reallocation of SDRs?

MR. SELASSIE: On insecurity, rising violence in the region, it is of course on top of on top of all the difficulties that the pandemic has wrought. Rising insecurity, as was cited in Mozambique and the Sahel is of course a source of grave concern and it's something that will also will also impact economic activity. It’s something that we watch carefully and try and internalize in the projections that we do for economic activity, for the policy calibration of countries. But one point I want to stress here is that the level of insecurity in the region is not as bad as what we used to see in the 80s or much of the 90s, but we have seen a clear uptick, particularly in the Sahel over the last few years and more recently in Mozambique. That's something that will require quite a bit of attention by politicians to facilitate a better economic policymaking environment.

On SDR allocation reallocation rather, you know, this is of course very much something that we're focused on as an entire institution. First the SDR allocation, the largest ever, is a very important sign of solidarity global solidarity. It's not something that comes about all that often. About $23 billion of this allocation will go to [sub-Saharan] Africa. But clearly the financing gaps the region faces are monumental and there is a need to channel more resources to the region through the IMF.

SDR is just one of the many vehicles that will be needed to support the region. In terms of rechanneling from those countries there are basically two concrete ways in which we expect will happen. The first is through the provision of more resources, more SDRs to the PRGT. This allows us to offer, you know, zero interest rate loans with 10-year maturity to our members in the region. A second trust, a new one is under consideration and was given very strong encouraging endorsement by members of the IMF. This is the Resilience and Sustainability Trust. This will provide resources for countries needing to undertake the major transformation needed to tackle climate change, for example. We're very hopeful that this trust can be up and running as soon as possible to allow us to provide financing. This will provide even longer maturity financing. So that's another important vehicle that will allow for the re-channeling of SDRs. Beyond this, there are a number of other ideas about how to re-channel SDRs that we hope could come to fruition in the coming months.

MR. KANYEGIRIRE: Thank you, Abe. Thanks everybody for joining us. Unfortunately, we have run out of time. There are quite a few questions that we shall come back to you on come back to bilaterally. A reminder to out for the Regional Economic Outlook documents on our website. Lastly, the Western Hemisphere Economic Outlook Press Conference will also be taking place a little later today. Stay safe!

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