## For Africa, Good Policies Bring Good Prospects

_IMF Blog, April 24, 2014_

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**Canonical URL:** [For Africa, Good Policies Bring Good Prospects](https://www.imf.org/en/blogs/articles/2014/04/24/for-africa-good-policies-bring-good-prospects)

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## Bibliographic details
- Authors: Antoinette M Sayeh
- Published: April 24, 2014

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### Growth outlook and drivers
- Growth in the region is set to pick up to 5½ percent in 2014 compared to 4.9 percent last year.
- Growth momentum over the medium term can continue if countries rise to new challenges and manage their economies as dexterously as they have over the past decade.
- Key drivers:
  - Good macroeconomic policies in the region.
  - Investment in infrastructure and mining.
  - Strong agricultural output.
  - Favorable global tailwinds—high demand for commodities and low interest rates.
- External support highlights:
  - China has been a major source of foreign direct investment and infrastructure financing for Africa.

### Downside risks to the outlook
- Export demand risk:
  - If growth in emerging markets slows considerably, export demand will decline, especially for base metals such as copper and iron ore.
  - Countries particularly exposed: Democratic Republic of Congo, Liberia, and Zambia.
  - Tighter financial conditions in China could reduce the appetite for Chinese companies investing abroad.
- Global financial conditions:
  - As advanced economies unwind highly accommodative monetary policies, global financial conditions will tighten.
  - Sub-Saharan Africa could experience a hike in interest rates and a slowdown, or even a reversal, of private capital flows.
- Security-related risks:
  - Conflicts in the Central African Republic and South Sudan are exacting a heavy human and economic toll and creating negative spillovers for neighboring countries through lower trade flows and higher security outlays.
- Fiscal risks:
  - High fiscal deficits in some countries threaten sustainability and could amplify vulnerability to shocks.

### Warning signs: fiscal imbalances and history
- Policy context:
  - In 2009 many countries mitigated the global crisis using countercyclical fiscal policy or avoiding fiscal procyclicality, maintaining spending when revenue fell.
- Recent fiscal patterns:
  - In the years preceding the crisis (2004–08), the region saw a fiscal surplus that averaged about 2 percent of GDP.
  - Between 2010 and 2013, the average fiscal deficit amounts to some 3 percent of GDP, a deterioration of 5 percentage points compared with pre-crisis levels.
- Debt levels:
  - Overall public debt-to-GDP ratios declined from a regional average of 37 percent in 2004–08 to some 33 percent in 2010–13.
  - Debt burdens have been kept in check by relatively high GDP growth rates.
- Concerns:
  - Continued weakening fiscal positions and rapidly rising debt in some countries, especially those reliant on portfolio flows, increase vulnerability to shocks.

### Higher-quality spending and fiscal trade-offs
- Much of the increased spending reflects boosts to public investment and pro-poor spending in health, education, and infrastructure.
- Rationale:
  - The Heavily Indebted Poor Countries Initiative was designed to give fiscal space for socially useful spending and rebuilding infrastructure.
  - Over the long run, higher investment in human capital and infrastructure should raise potential growth sufficiently to pay off debt, assuming spending quality is high.
- Fiscal judgment:
  - Deficits of the order of 2–3 percent of GDP are probably not a bad thing and will not lead to rising debt burdens given higher GDP growth rates.
- Targeted concern:
  - Countries depending heavily on portfolio flows to finance deficits are particularly vulnerable and need to put their fiscal house in order.

### Preparing for future shocks — policy recommendations
- Strengthen resilience to shocks by:
  - Boosting the revenue base.
  - Avoiding excessive spending growth.
  - Intensifying efforts to bring public finances on a more sustainable path in countries with large fiscal deficits and high or rapidly rising debt levels.
  - Fast-growing countries should take advantage of growth momentum to strengthen fiscal balances.
  - Improve the quality and efficiency of public spending across all countries.
- Leverage existing strengths:
  - Make use of current favorable conditions (“make hay while the sun shines”) to rebuild fiscal buffers and reduce vulnerability.

*Source: Antoinette M. Sayeh, April 24, 2014.*

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## Content in this bundle

- **Regional Economic Outlook: Sub-Saharan Africa -Fostering Durable and Inclusive Growth, April 2014**
  - [Regional Economic Outlook: Sub-Saharan Africa -Fostering Durable and Inclusive Growth, April 2014 (Markdown version)](/external/pubs/ft/reo/2014/afr/eng/sreo0414.pdf.md){rel="alternate" type="text/markdown"}
  - [Regional Economic Outlook: Sub-Saharan Africa -Fostering Durable and Inclusive Growth, April 2014 (PDF)](/external/pubs/ft/reo/2014/afr/eng/sreo0414.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/wp-content/uploads/2014/04/afr_chapter1_1.jpg](https://www.imf.org/wp-content/uploads/2014/04/afr_chapter1_1.jpg)
- [https://www.imf.org/wp-content/uploads/2014/04/afr_chapter1_2_new.jpg](https://www.imf.org/wp-content/uploads/2014/04/afr_chapter1_2_new.jpg)
- [https://www.imf.org/wp-content/uploads/2014/04/afr_chapter1_3.jpg](https://www.imf.org/wp-content/uploads/2014/04/afr_chapter1_3.jpg)

_Source: https://www.imf.org/en/blogs/articles/2014/04/24/for-africa-good-policies-bring-good-prospects_