Updated: February 28, 2021
The International Monetary Fund on Friday again forecast that the economies of most African countries would continue to grow this year, although some of the most populous nations on the continent such as Nigeria would witness further decline. However, many countries would experience debt distress.
Economic growth in Sub-Saharan Africa is projected to pick up modestly from 2.8 percent in 2017 to 3.4 percent in 2018, said IMF chief economist and Director of African Department, Abebe Aemro Selassie.
IMF chief economist and Director of the African Department, Abebe Aemro Selassie (left), and Lucie Mboto Fouda, a Senior Communication Officer with the IMF Communication Department, on 20 April 2018, during the World Bank and IMF Spring Meeting press conference in Washington DC
He said the recovery would be broad-base with two-thirds of countries in the region seeing their growth accelerate in 2018.
“However, these headline figures mask the wide diversity in growth outcomes and prospects across the countries in the region,” Selassie said at a press briefing to understand the state of the African economy during the World Bank and IMF Spring Meetings in Washington D.C.
He said several countries such as Cote d’Ivoire, Ethiopia, Senegal and Ghana are growing robustly with a growth of about 6 percent. But countries that are home to one-third of the region’s population which saw their per capita incomes fall in 2017 are projected to witness further decline.
The growth pick up has largely been driven by a more supportive external environment, including stronger global growth, higher commodity prices, and favorable financing conditions.
“On this latter point, the record amount of Eurobond issuances ($8.8 billion) in the first quarter gives an indication of the significant improvement in access to international markets,” Selassie said.
But there are also bad news. Public debt ratios are on the rise.
About 40 percent of low-income countries in the region are now in debt distress or at high risk of debt distress.
“While the causes of this increase are country specific, in part, it represents much needed investment in infrastructure and development spending which is delivering growth and improved social outcomes,” Selassie said.
Most of the countries in distress or at risk of debt distress are resources based economies, which have had to content with the largest real oil price decline since 1970 that reduced economic growth and government revenues.
Overall, average medium-term growth is expected to plateau at 4 percent, falling far short of levels envisaged five years ago, and below what is needed to ensure progress consistent with the Sustainable Development Goals, IMF forcast.
It said the reason for this, was because the favorable external environment could fade over time, and borrowing terms for the region’s frontiers markets could tighten.
In addition, elevated security risks are imposing an immense economic and human toll, particularly in fragile states which are already grappling with high rates of poverty and political instability.
But there is something African countries can do. They should take advantage of the favorable external conditions and take domestic policy steps to reduce macroeconomics vulnerabilities and raise medium-term growth potential.
To achieve this, Mr. Selassie said, fiscal policy needs to strike a balance between debt sustainability and ensuring adequate space for key infrastructure and priority social spending.
“Oil-exporting countries need to continue to forcefully implement their fiscal consolidation plans and advance economic diversification, taking advantage of the respite provided by the recent pickup in commodity prices,” he added.
For oil importing countries, which in some cases have been sustaining growth on the back of large public investment outlays, often resulting in debt accumulation, they need to reduce fiscal imbalances and accelerate reforms to facilitate the private sector taking over as the engine of growth.
Central to the goal of addressing debt vulnerabilities is tax revenue mobilization, IMF recommended.
“Stepping up revenue collections would allow Sub-Saharan African countries to make progress towards their Sustainable Development Goals, while preserving fiscal sustainability,” Selassie said.
Structural policies to raise private investment and nurture a dynamic private sector are also needed in many cases, IMF said.
It said the recently signed African Continental Free Trade Agreement CFTA is a potentially game changing initiative that could boost intra African trade income if fully implemented.
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