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.
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