Strong Economic Growth is Expected in the Region Again in 2015 as in 2014 if Foreseen Threats are Mitigated Successfully—Which include the Security Risk; but this Year’s Growth Will be on ‘the Lower Side’.
The fallen world oil prices will impact the region both positively and negatively as the region’s eight oil producers suffer while the oil importers make a saving.
By TZ Business News Staff
The International Monetary Fund (IMF) has called on the international community to consider making available financial assistance to Sub-Sahara African countries facing budgetary constraints brought by terrorism and other security threats in the region.
Responding to a question during a press briefing at the IMF headquarters in Washington DC on Friday, April 17, 2015, the IMF Director for the African Department Ms Antoinette Sayeh said “a need for better supporting critical security efforts are priorities that I think the international community needs to help countries support.”
A journalist had asked “While you have mentioned the plight of security in certain regions of Africa, from Kenya to Central African Republic…can we imagine that IMF put in place a kind of mechanism through the budget?…the same mechanism you created for Ebola case.”
Sayeh replied: “This is an important question. A number of countries, of course, are facing threats that have not been known in the past and have not been big threats in the past — terrorist threats — and seeking to deal with them in the context of constrained budgets that they have and trying to mitigate the impact of those threats on their economies.
“We’ve seen already in the region — you talk about Northern Cameroon, Chad, and Northern Nigeria, Niger, that area — the economic impact of, of course, the Boko Haram situation that has reduced trade flows across borders there …is leading countries to seek to readjust, reallocate spending to make room for the effort they need to reinforce on the security side.
“So, certainly, a need for better supporting critical security efforts are priorities that I think the international community needs to help countries support,” she said.
“And, in the context of programs that we have with some countries, where they may be facing what are clearly shocks related to threats, security threats, and security realization as people, refugees, move across borders, that sort of thing that draws on their budgets to help to deal with that, certainly, it’s possible for us to look at those issues and see whether they have a balance of payments need brought about by their need to really adjust to those circumstances.
“This is new territory, and this is — these are new developments that we are thinking about and — but, certainly, it’s possible in our financing relationships with some of our member countries to look at their needs and to determine whether we can help,” Sayeh said.
The IMF Director for the African Department was talking to journalists at the IMF headquarters in a briefing before the launching of this year’s first bi-annual Sub-Saharan Africa Economic Outlook which will be launched in Accra Ghana later this April, 2015.
Sayeh told journalists in IMF’s assessment to this point, the economic growth in Sub-Sahara Africa would remain strong except for South Africa, where growth continues to remain lacklustre due to electricity problems.
In the rest of the region, there were only three main threats the fund sees that could hamper the forecast economic growth. These threats include the security problem.
Domestically, security-related risks have recently come to the fore in a number of countries, especially in the Sahel, but also in Kenya, she said.
“Beyond the unbearable humanitarian costs they have on societies, these incidents, if they were to escalate, would also pose serious fiscal risks and further deter domestic and foreign investors,” the Director said, identifying elections as a security issue as well in the region.
“The election scheduled this year in several countries of the region could also complicate the implementation of politically difficult reforms,” she said. The positive economic outlook for Sub-Sahara Africa may also be hindered by two other drawbacks if unmitigated.
“Let me elaborate here…. First, on the external front, global financial conditions facing the region have tightened somewhat and could tighten further still in the period ahead as monetary policy normalization proceeds in the United States, she said, adding:
“In that context the large fiscal and current account deficits that prevail in some countries, especially frontier market economies could leave them vulnerable to a rapid reversal in market sentiment and a reduction in external financing.
“Second, the uneven global recovery could also disappoint notably in Europe and China, which are sub-Saharan Africa’s main trading partners.”
Otherwise, “Sub-Saharan Africa’s economic outlook remains favorable and the region is set to register another year of solid economic performance. Indeed, the region’s economy is expected to expand by 4.5 percent in 2015 and will continue being one of the fastest growing regions in the world, in fact, second only to emerging and developing Asia,” she said and continued:
“That said, the economic expansion this year will be at the lower end of the range experienced in recent years. This mainly reflects the impact of the sharp decline in oil and commodity prices that we’ve witnessed over the last 6 months.
“However, as always for a region with so much diversity, the effect of this shock will be highly heterogeneous across the region. On the one hand, the region’s eight oil exporters will be hard hit and with generally limited fiscal and external buffers, they are expected to undertake significant fiscal adjustment, which will vent the growth outlook.
“For much of the rest of the region, near-term prospects remain quite positive and most countries plan to benefit from lower oil prices. Still for some of them, this positive effect will be partly offset by the decline in prices of some of the non-oil commodities they export. Overall, growth in oil importers, in particular low income countries, should remain solid and driven by investment in infrastructure and strong consumption.
“A notable exception to this favorable picture among oil importers is South Africa where growth remains lackluster, held back by continuing problems in the electricity sector. In addition, in Guinea, Liberia, and Sierra Leone, the Ebola outbreak, although it is slowing abating, continues to exact a heavy economic and social toll. All in all, the outlook remains for solid growth, although new challenges have emerged.
“Against this backdrop, what should policies focus on? In the short run, dealing with the oil shock will be the priority. Faced with a massive shock and with limited buffers, oil exporters will have no choice but to undertake fiscal adjustment. Spending cuts should be directed to the extent possible to non-priority recurrent spending, but significant cuts in public investment could be unavoidable. Where feasible, exchange rate flexibility will also be important to preserve scarce external reserves.
“The drop in oil prices also provides a unique opportunity to advance politically difficult energy subsidy reforms across the region. And from a more medium term perspective, the current commodity shock is also a powerful reminder of the need to make more rapid progress towards economic diversification and structural transformation to ensure strong and durable growth. This will in turn require striking the appropriate balance between scaling up outlays on human capital and infrastructure development and avoiding an unsustainable debt buildup.
“Let me close by adding that we remain very optimistic about the long-term growth prospects of the region. Consider demographic trends in the region. Work that we will soon be publishing shows that by 2030 or so, the number of people reaching working age from the region will exceed that of the rest of the world combined. This is something with huge implications for both the region and the global economy. This offers a tremendous opportunity for sub-Saharan Africa, which properly tapped, can be a strong engine for growth going forward.
“These and other topical issues will be discussed extensively in our new issue of our biannual Regional Economic Outlook for Sub-Saharan Africa, which we are now finalizing. It will be published on April 28 with a launch event in Accra.”