Abebe Aemro Selassie Media Roundtable

IMF News, February 5, 2024

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Growth: expect growth to accelerate from 3.3% last year, to around 3.8% this year.
Inflation: median inflation now closing at around 6%, which is about 4% percentage points lower than it had been at the beginning of 2023.
Investment: both domestic and foreign investment picked up through 2023, supporting activity in 2024.
Output gap: despite the pickup to 3.8%, activity is “markedly lower than the region's potential.”

Financing conditions: global financing conditions have “remained fairly difficult” with continued pressure on foreign exchange rates and attenuated capital flows (despite recent Cote D’Ivoire issuance).
Policy tradeoffs: policymakers face a difficult external environment while pursuing reforms to reignite growth.

Public debt: IMF estimates suggest public debt will have stabilized at around the 60% mark following about a decade of sustained increase.
Fund disbursements and commitments:
- Disbursed around $3 billion over the last three months since October.
- Total commitments under programs approved by the IMF Board are to the tune of around $19 billion through the end of the program period.
Resilience and Sustainability Trust (RST): six programs under the RST to support countries’ reforms to strengthen resilience against climate change.

Senegal: political uncertainty can be detrimental to economic activity; IMF emphasises the need for Senegal to “pass through this political difficult period” successfully.
Mali, Niger, Burkina Faso and ECOWAS:
- IMF has been following announcements about intentions to leave ECOWAS; situation described as “fluid” and “too early to say” definitive implications.
- Main anticipated channel of harm: increased trade friction and higher transaction costs for already landlocked countries.
- No announcement about potential exit from WAEMU; IMF considers speculation on that “very highly speculative.”

Debt-for-climate swaps: Cabo Verde–Portugal proposal is being followed with interest.
- IMF involvement in Cabo Verde: Cabo Verde is using the Resilience and Sustainability Trust; IMF providing financing for measures to strengthen climate resilience.
- Key design consideration: ensure new financing terms actually benefit Cabo Verde and do not entail additional spending that would reduce net benefit.
Broader view: IMF hopes to explore more such instruments and create forums to raise climate financing to ease climate burdens over time.

Heterogeneous reform experiences across countries; region has faced “brutal” exogenous shocks over the past three or four years (pandemic, supply-chain dislocations, higher commodity prices after the war in Ukraine).
Positive policy signs:
- Decelerating inflation.
- Fiscal adjustments that have allowed debt stabilization.
- Structural reforms, including exchange rate reforms in countries such as Malawi and Nigeria.
IMF assessment: “a lot of encouraging signs” while acknowledging acute hardship for vulnerable populations and political tensions in some countries.

Cote D’Ivoire issuance: seen as an encouraging sign of market re-entry after sustained reforms.
Kenya:
- IMF notes “very solid and very, very strong efforts” on macroeconomic and structural reforms, including fiscal reforms to keep the primary balance at a stabilizing level.
- IMF provided close to $950 million augmentation recently, reflecting continued program support.
- Prospect: IMF is hopeful Kenya can return to markets in due course; a diaspora bond is being discussed by Kenya and the World Bank as a potential instrument.
Market discrimination: return to markets likely to be country specific; easing of overall market conditions does not guarantee uniform market access.

Common Framework performance: faster relative to historical official restructurings, but “nowhere near” as nimble and effective as needed.
Key bottleneck: comparability of treatment issues and creditor coordination can delay restructurings (Zambia and Ethiopia cited).
Institutional response: Global Sovereign Debt Roundtable (GSDR) is intended as a forum to discuss cross-cutting issues (including comparability of treatment) and develop principles or processes to reduce blockages.
Zambia: restructuring discussion is “firmly in the court of the OCC, the official creditor committee”; IMF urges compromise and a timely decision by the OCC.
Complexity: calculating comparability of treatment is not an exact science given diverse lending terms; IMF stresses progress is being made though frustratingly slowly for stakeholders.

Senegal: political uncertainty noted; IMF refrains from detailed commentary given recent developments.
Mali, Niger, Burkina Faso: intentions to leave ECOWAS could raise trade frictions and transaction costs; IMF prefers dialog to keep countries within ECOWAS.
Cabo Verde: using RST; exploring debt-for-climate swap with Portugal—benefits depend on deal design.
Kenya: program well on track; recent augmentation close to $950 million; structural reforms ongoing; potential return to markets conditional on easing conditions and continued reforms.
Ghana: program implemented effectively; IMF completed first program review recently; official creditors signaled they will provide debt relief consistent with what Ghana needs; emphasis on staying the course over the multi-year program implementation.
Zambia: awaiting OCC decision; IMF supporting processes to resolve creditor coordination and comparability issues.

IMF view: African policymakers tend to be pragmatic and maintain broad trading and diplomatic relationships rather than aligning exclusively with one international partner or camp.
Risk of fragmentation: IMF sees most countries seeking diverse partners in their self-interest; shifts in alignments in some countries are part of normal evolution.

Continue fiscal adjustment and policies that stabilize and reduce debt over time.
Maintain reforms that support macroeconomic stability (inflation control, exchange rate adjustments where needed).
Use climate finance (including RST and carefully-designed debt-for-climate swaps) to strengthen resilience—ensure terms deliver net benefit.
Improve creditor coordination and sovereign debt processes (GSDR) to speed up restructurings and resolve comparability of treatment issues.
Pursue reforms that restore market confidence while avoiding premature or excessively costly market re-entry.

Transcript: Abebe Aemro Selassie Media Roundtable, February 5, 2024.