Transcript of African Department Press Briefing
IMF News, October 8, 2016
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- Published: October 8, 2016
Regional economic outlook
- Growth projection for Sub-Saharan Africa this year: 1.4 percent.
- Growth last year: 3.5 percent.
- Regional growth between 2010 and 2014: 5 percent and more.
- Median growth this year: 3.8 percent.
- Projected pickup conditional on prompt reforms: around 3 percent next year and higher rates beyond that.
- Characterization: "multi-speed growth" — regional aggregate masks wide country diversity; about 19 out of 45 odd countries continue to enjoy robust growth.
Key findings on country groups and shocks
- Commodity exporters (particularly oil exporters, e.g., Angola and Nigeria, and five of the six countries in the central African monetary -- economic and monetary union) are under severe strain; near-term prospects have worsened and the pain is spreading to non-oil sectors.
- South Africa: conditions particularly difficult; output expansion expected to be weak in the near term.
- Drought-affected countries noted: Lesotho, Malawi, Zambia and Zimbabwe.
- Positive performers cited: Côte d’Ivoire, Ethiopia, Senegal, and Tanzania with economic output set to expand by 6 percent or more by this year.
Policy assessment and recommendations
- For hardest-hit commodity exporters:
- Immediate, sustained adjustment based on a comprehensive, internally coherent set of policies to re-establish macro stability.
- Allow exchange rates to fully absorb external pressures (for countries outside monetary unions).
- Strong and orderly fiscal adjustment to contain deficits.
- Tight monetary stance focused on containing inflation.
- For countries within monetary unions: fiscal adjustment requirement likely stronger; central bank financing of excessive deficits needs curtailing.
- Delaying adjustment risks disorderly outcomes, undermining near-term growth and delaying job recovery.
- If adjustment is anchored in a credible medium-term framework and supported by concessional financing, the pace of adjustment can be more gradual and attenuate near-term growth impact.
- For countries with continued strong growth:
- Need to strike a better balance between stepped-up development/investment spending and debt sustainability.
- Strong advocacy for reforms aimed at increasing revenue mobilization to contain fiscal deficits while sustaining increased investments.
- Social protection and distributional considerations:
- Fiscal adjustment should be designed to minimize harm to the poor via progressive tax design and targeted safety nets.
- Subsidy reform: eliminate or reduce regressive subsidies while protecting low-income households.
Country-specific summaries and advice
- Zambia
- Shock drivers: heavy reliance on copper exports and decline in copper prices; elevated domestic spending pressures.
- Recommended response: significant fiscal adjustment supported by monetary steps; subsidy removal paired with targeted protections and safety nets.
- Nigeria
- Required measures: significant fiscal adjustment (especially revenue measures); tighter monetary conditions; structural reforms to improve supply response.
- Debt context: debt level described as "not very high" — room to pace adjustment with credible policy framework to attract financing.
- Angola
- Under severe strain as oil exporter; adjustment unavoidable; IMF engagement via Article IV surveillance (government indicated it is not seeking an IMF program).
- South Africa
- Noted as facing difficult conditions, with potential spillovers to neighboring and regional perceptions.
- Ghana
- IMF program: three-year program in place; fiscal deficit reduced from 12 percent in 2012 to about currently 6 percent; target to reach 5.3 percent by the end of the year.
- Recent data through end-July: weak revenue performance but contained spending; fiscal deficit outcome was on program through then.
- Risks: election-related spending increases; need for continued publication of monthly data and avoidance of overspending around elections.
- Growth: recent growth around 4 percent; medium-term pickup to around 5.5 - 6 percent conditional on continued fiscal adjustment and lower inflation/real interest rates.
- Mozambique
- Agreement reached with the government on an independent audit of loans taken by state-owned enterprises; audit will be made public.
- IMF stance: transparency in fiscal accounts and public policy making is essential; IMF works with provided data.
- Reference to problematic borrowing: cited figure "1 billion U.S. dollars" in discussion of prior loan fiasco.
- Kenya and Uganda (upcoming oil exporters)
- Central advice: maintain diversified economies, minimize reliance on oil for fiscal and export purposes, and preserve competitiveness and investment in other sectors.
Fiscal, social and infrastructure priorities
- Revenue mobilization: repeatedly emphasized as central to sustaining investment and containing fiscal deficits.
- Infrastructure investment: scaling up infrastructure is a priority; projects that reduce transaction costs likely have significant returns.
- Advice: aggregate projects to assess fiscal implications; capture rate of return through appropriate user fees; expand tax base to help finance projects.
- Energy subsidies and access:
- Statistic cited: 635 to 650 million Africans living without a light.
- Trade-off question: energy subsidies can consume significant resources; IMF view is country-specific assessment needed to determine whether subsidy spending is the most effective use versus directing resources to address power deficits.
- Broad subsidy impact: where significant, consider reallocating resources to infrastructure and power access while protecting vulnerable groups.
Trade policy and external environment
- External environment deterioration (commodity prices and tighter financial market conditions) is a key driver of the downturn.
- On trade openness: country-specific considerations predominate; low-income countries face asymmetric trade preferences (e.g., AGOA, Everything But Arms) and the priority is to exploit existing frameworks, promote exports, improve competitiveness, and address infrastructure gaps that raise trade costs.
Spillovers, perception and confidence channels
- Immediate spillovers affect neighbors (example: Benin affected by Nigeria via informal trade disruptions).
- Broader spillovers through regional aggregates and investor perception: weakness in large economies can raise risk premia and negatively affect perceptions of other African economies.
- Policy credibility and data transparency are emphasized as essential for market confidence and to attract financing.
IMF engagement, surveillance, and publications
- IMF engagement approach: Article IV surveillance continues with members, including Angola.
- Mozambique: independent audit prerequisite agreed; IMF awaiting further developments.
- Publication: IMF semi-annual regional economic outlook for Sub-Saharan Africa to be published on October 25; launch events in Cameroon (Yaounde) and Nairobi on that day.
Transcript of African Department Press Briefing, Washington, D.C., October 8, 2016.