## Sustaining High Growth in Sub-Saharan Africa

_IMF News, November 6, 2017_

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## Bibliographic details
- Published: November 6, 2017

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### Progress to date
- Political and administrative reforms: increasing checks and balances, development of regulatory and judicial frameworks, and more independent central banks.
- Growth episodes:
  - Since 1990, three quarters of the countries in the region have registered at least 10 years of uninterrupted growth.
  - Over one-third of the countries have registered 20 years or more of uninterrupted growth.
- Human development improvements over the last 25 years:
  - Life expectancy increased from 50 to 60 years.
  - Child and maternal mortality rates have halved.
  - Primary school enrolment is up to 80 percent.

### Emerging macroeconomic vulnerabilities
- End of a long growth spell:
  - Over 15 years of continuous growth in income per capita in the region came to an end last year.
  - 12 of 45 countries are expecting per capita incomes to decline this year; these 12 countries are home to about 40 percent of the region’s population, or 400 million people.
- Rapid public debt accumulation:
  - Median public sector debt in sub-Saharan Africa rose from 34 percent of GDP in 2013 to 48 percent in 2016.
  - Public debt is now above 50 percent of GDP in half of the economies in the region.
- Rising debt-service burden:
  - The median debt service-to-revenue ratio among sub-Saharan African countries increased from 5 percent in 2013 to nearly double that in 2017.
  - In oil-exporting countries, the debt service-to-revenue ratio is at 25 percent.
  - Example: In Zambia, spending on debt interest alone is over half of what the government spends on education and health; in 2011 it was just 20 percent.

### Why debt has increased so rapidly
- By region and sector:
  - In oil-exporting countries, public debt increased on average by more than 8 percentage points of GDP per year between 2013 and 2016. Drivers: large primary deficits, a growing interest bill, and balance sheet effects associated with exchange rate depreciation amid low or negative growth.
  - In the rest of the region, the debt-to-GDP ratio has been increasing at an average rate of about 5 percentage points of GDP per year. Drivers: large primary deficits, valuation effects from exchange rate depreciation, and below-the-line operations such as migration of state-owned enterprise liabilities onto the government balance sheet.
- Contributing factors:
  - Desirable borrowing for growth-enhancing investment to close a significant infrastructure gap and support convergence given lower starting incomes and population growth.
  - Political economy: strong pressures to spend on infrastructure, social services, and institutions; small coalition for fiscal prudence versus powerful coalition for postponing adjustment.
  - External environment: low global interest rates increasing investor appetite for the region’s debt, lowering borrowing costs despite worsening fundamentals.

### Policy requirements and recommendations
- Overall objective: strike a better balance between much needed investment and debt sustainability; raise macroeconomic health to the top of the policy agenda.
- Fiscal reform priorities:
  - Raise domestic revenues and broaden the tax base to create space to scale-up social and other priority spending and strengthen fiscal sustainability.
  - Potential to increase the tax-to-GDP ratio by 3 to 6 percentage points over the medium-term.
  - Reduce inefficient fuel subsidies that disproportionately benefit the better-off and larger firms.
  - Implement targeted cash transfers for the most needy to protect vulnerable groups while achieving redistribution.
  - Increase transparency to identify how public resources are being raised and spent to help overcome vested interests and build support for revenue measures.
- Implementation considerations:
  - Design fiscal consolidations to attenuate adverse effects on growth and the most vulnerable.
  - Strengthen institutions and policies (IMF offers policy advice, technical assistance and program engagement) to help countries capture returns on public investments.

### Future prospects and structural opportunities
- Demographics:
  - Most countries in sub-Saharan Africa are on the cusp of a demographic transition; by 2030 or so, half of the annual increase in the global working age population will come from sub-Saharan Africa.
- Technology:
  - Rapid technological change, including Fintech expansion, can facilitate greater catch-up growth and broaden financial access.
- Critical challenges to realize potential:
  - Climate change, deepening power sharing, ensuring inclusivity, and closing gender gaps (about half of the contribution from the growing labor force are women).
- Final assessment:
  - Rising public debt, if left unaddressed, will constrain the region’s growth potential.
  - With tough but necessary reforms, sub-Saharan Africa can return to a path of strong growth that raises living standards for all.

*Source: Speech by Abebe Aemro Selassie, Director, African Department, IMF; The London School of Economics, London, November 6, 2017.*

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## References

- [Abebe Aemro Selassie](https://www.imf.org/en/About/senior-officials/Bios/abebe-selassie)
- [Sub-Saharan Africa Regional Economic Outlook: Fiscal Adjustment and Economic Diversification](http://www.imf.org/en/Publications/REO/SSA/Issues/2017/10/19/sreo1017)
- [The Federal Democratic Republic of Ethiopia and the IMF](http://www.imf.org/external/country/ETH/index.htm)
- [Zambia and the IMF](http://www.imf.org/external/country/ZMB/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/11/06/sp110617-sustaining-high-growth-in-sub-saharan-africa_