While growth in sub-Saharan Africa is still stronger than in many regions, economic activity in several countries has weakened markedly in recent months, prompting the IMF to mark down its forecasts for 2015 to 3¾ percent—the lowest in six years.
Speaking to reporters during the IMF-World Bank Annual meetings in Lima Peru, Antoinette Sayeh, head of the IMF’s African department, said the vastly improved business and macroeconomic environment that has allowed for strong growth in recent years now risks being eclipsed by falling commodity prices and less accommodating financial conditions.
There is considerable variation across the region, however, said Sayeh. Hardest hit are the eight oil-exporting countries—including Nigeria and Angola—which together account for half of the region’s GDP. “Falling export incomes and sharp fiscal adjustments are taking their toll on growth, which is expected to decelerate sharply to 3½ percent this year, from 6 percent in 2014”, Sayeh said, adding these numbers are weighing down on the regional average.
Sayeh noted while low-income countries continue to experience growth rates of around 6 percent, thanks to sustained private consumption and investment in infrastructure, growth in several middle-income countries is being hampered by electricity shortages, increasingly difficult financing conditions and weaker commodity prices.
Limited savings to offset drag
The prospects for many countries are further compounded by modest savings and growing deficits, Sayeh said: “In many cases, savings from the recent period of rapid growth have been limited, and countries are now entering this period with larger fiscal and external deficits than at the onset of the 2008 global financial crisis.”
Sayeh also described the security situation in a number of countries as a further risk: “The civil war in South Sudan and the acts of violence perpetrated by Boko Haram and other insurgency groups in a region spanning Cameroon, Chad, Niger, Nigeria, and Mali, are causing widespread suffering. They are also weighing on economic activity, straining fiscal budgets, and diminishing the prospects for investment”. Sayeh added the recent political unrest in Burundi and Burkina Faso was also a cause for concern.
Weathering the sharp and durable decline
Sayeh said for oil-exporters, with oil prices such as they are, “fiscal adjustments are unavoidable, and the room to smooth this adjustment is becoming increasingly limited. For most other countries, fiscal policies need to be guided by medium-term spending frameworks that balance debt sustainability considerations while addressing development needs.”
Exchange rates in some countries have also been under pressure, Sayeh said. “Wherever the terms-of-trade decline has been large and the exchange rate is not pegged, it is appropriate to allow for the exchange rate depreciation to absorb the shock. But even countries that are not heavily reliant on commodity prices have seen their currency come under pressure. Given the strong global forces behind these pressures, there too, resisting these pressures risks losing scarce reserves.”
Sayeh said diversifying the economy and tapping into the region’s significant tax potential, would help countries continue to finance infrastructure and development needs, while containing the increase in public debt.