Restarting the Growth Engine Regional Economic Outlook for Sub-Saharan Africa African Department International Monetary Fund May 217
Outline Adjustment Financing A Broad-based Slowdown Insufficient Adjustment Increasing Vulnerabilities Recalibrating the Policy Response 2
Frequency 216 saw a broad-based slowdown, with commodity exporters being particularly hit... Real GDP Growth, Average 21 15 8 Weighted BWA Median = 5.1 7 Resource-intensive countries average = 5. ERI 6 Nonresource-intensive countries GAB 5 4 LBR BFA 3 BEN AGO SYC CIV 2 COM BDI LSO CMR SLE KEN TCD MOZ 1 CAF MDG GNB MLI STP COG TGO NAM NER RWA COD SSD GNQ CPV GIN ZAF GMB SWZ MUS SEN MWI UGA NGA ZMB TZA ZWE GHA ETH 2 2. 1.5 1..5..5 1. 1.5 2. 2.5 3. 3.5 4. 4.5 5. 5.5 6. 6.5 7. 7.5 8 >8 Percent 3
Frequency 216 saw a broad-based slowdown, with commodity exporters being particularly hit... Real GDP Growth, 216 8 Weighted Median = 3.7 7 average = 1.4 BEN 6 Resource-intensive countries CPV 5 Nonresource-intensive countries COM CMR BFA 4 TCD COD GHA CAF GIN 3 COG GAB BWA MDG NER GNB 2 GNQ BDI AGO NAM GMB LSO ERI STP SLE MLI SEN CIV 1 SSD NGA LBR SWZ ZAF ZWE MWI ZMB MOZ MUS SYC UGA TGO RWA KEN TZA ETH 2 2. 1.5 1..5..5 1. 1.5 2. 2.5 3. 3.5 4. 4.5 5. 5.5 6. 6.5 7. 7.5 8 >8 Percent 4
and in some cases, compounded by rising food insecurity. 5
Inflation is ticking up in many countries in the region. 3 Number of Countries with Inflation Rates Greater than 1 Percent 25 Number of countries 2 15 1 5 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 6
Outline Adjustment Financing A Broad-based Slowdown Insufficient Adjustment Increasing Vulnerabilities Recalibrating the Policy Response 7
Percent of GDP Fiscal deficits have widened among hardest-hit countries and remain elevated elsewhere. 8 Fiscal Balance, 21 16 6 4 2 2 4 6 Average 21 13 216 Average 21 13 216 Average 21 13 216 Oil exporters Other resource-intensive countries Nonresource-intensive countries Overall balance (percent of GDP) 8
Percent Fiscal deficits have widened among hardest-hit countries and remain elevated elsewhere. 8 6 4 Fiscal Balance and Real GDP Growth, 21 16 2 2 4 6 Average 21 13 216 Average 21 13 216 Average 21 13 216 Oil exporters Other resource-intensive countries Nonresource-intensive countries Real GDP growth (percent) Overall balance (percent of GDP) 9
Higher borrowing costs have made recourse to external market financing less attractive 1, 9 8 Frontier and Emerging Market Spreads, 214-17 Emerging markets Sub-Saharan Africa frontier markets Basis points 7 6 5 4 3 2 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 1
Dec. 216 or latest available, percent of commercial bank assets...leading to greater recourse to domestic financing,... Exposure of Commercial Banks to the Government 35 Increasing Exposure SLE 3 AGO BDI 25 GAB SYC 2 UGA KEN GHA GNB CIV 15 MWI CPVMOZ NGAZMB TCD CAF TZA GIN CMR MLI BEN MDG SEN SWZ TGO 1 NER ZAF COG MUS BFA NAM LSO 5 GNQLBR COM BWA Decreasing Exposure SSD STP 5 1 15 2 25 3 35 Average December 21 13, percent of commercial bank assets 11
AGO NGA GHA SLE ZMB DRC TZA GIN ZAF NAM LBR ZWE¹ UGA STP RWA KEN MUS ETH BDI Percent Exchange rates have depreciated, but not sufficiently in some cases with parallel markets spreads emerging 8 7 6 5 4 3 2 1 Depreciation of National Currencies Against the U.S. Dollar since December 213 (+ indicates depreciation) Spread with parallel rate, latest available Change in exchange rate, Dec. 213 Mar. 217 Oil exporters 1 Unofficial estimates report the spread to be around 2 percent between cash U.S. dollars and domestic bank deposits and bond notes. Other resource-intensive countries Nonresource-intensive countries 12
and reserves are trending lower for the region, and acutely so in oil exporters 7 International Reserves, 214 16 6 Months of imports 5 4 3 2 1 Sub-Saharan Africa interquartile range Oil exporters median Nonresource-intensive countries median Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 13
Outline Adjustment Financing A Broad-based Slowdown Insufficient Adjustment Increasing Vulnerabilities Recalibrating the Policy Response 14
Debt levels are on the rise across the region Public Debt, 2 16 16 14 12 Sub-Saharan Africa interquartile range Sub-Saharan Africa median Oil exporters median Percent of GDP 1 8 6 4 2 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 15
Simple average, percentage points and public debt is on the rise, increasing the pressure on debt sustainability... Simple average, percentage points 15 Public Sector Debt Accumulation, 21 16 1 15 5-5 -1 1 5-5 -1 211 13 214 16 211 13 214 16 211 13 214 16 211 13 214 16 211 13 214 16 211 13 214 16 Oil exporters Other resource-intensive countries Nonresource-intensive Oil exporters Other resource-intensive countries Nonresource-intensive Primary deficit Real growth and interest rate Exchange rate depreciation Other Change in debt 16
Simple average, percentage points and public debt is on the rise, increasing the pressure on debt sustainability... Simple average, percentage points 15 1 5 15 1 5 Public Sector Debt Accumulation, 21 16-5 -5-1 -1 211 13 211 13 214 16 214 16 211 13 211 13 214 16 214 16 211 13 211 13 214 16 214 16 Oil exporters Oil exporters Other Other resource-intensive countries Nonresource-intensive Primary deficit Real growth and interest rate Exchange rate depreciation Other Change in debt 17
Simple average, percentage points and public debt is on the rise, increasing the pressure on debt sustainability... 15 1 5-5 -1 Simple average, percentage points 15 1 5-5 Public Sector Debt Accumulation, 21 16-1 211 13 214 16 211 13 214 16 211 13 214 16 211 13 214 16 211 13 214 16 211 13 214 16 Oil exporters Other resource-intensive countries Nonresource-intensive Oil exporters Other resource-intensive countries Nonresource-intensive Primary Primary deficit deficit Real growth Real growth and interest and interest rate rate Exchange rate rate depreciation Other Change in debt in debt 18
...especially in oil-exporting countries. External Debt Service-to-Exports Ratio, 21-16 Total Debt Service-to-Revenue Ratio, 21-16 25 25 2 Interquartile range Sub-Saharan Africa median Oil exporters median 2 Interquartile range Sub-Saharan Africa median Oil exporters median 15 15 1 1 5 5 21 211 212 213 214 215 216 21 211 212 213 214 215 216 19
CAF SLE GNQ NER LBR GHA CMR TCD AGO GIN TZA ZAF BWA NGA GAB NAM COG SEN MDG BDI SYC SWZ RWA UGA KEN MUS LES MOZ Percent The financial sector is feeling the pinch, with asset quality declining,... 3 25 2 Nonperforming Loans to Total Loans 213 Latest available 15 1 5 Resource-intensive countries Nonresource-intesnive 2
TCD GAB COG AGO GNQ CMR NGA ZWE CAF GIN ZMB BFA LBA GHA BWA TZA NAM NER ZAF SLE COD MLI GNB GMB LSO RWA KEN MUS UGA TGO SWZ SEN BDI BEN CPV STP ETH COM MWI MDG ERI CIV SYC MOZ Percentage points...and credit to private sector slowing sharply. 2 1 Change in Credit Growth to the Private Sector, Average 211 13 vs. 216-1 -2-3 -4-5 Oil Exporters Other resource-intensive countries Nonresource-intensive countries 21
The outlook is still subdued with modest growth rebound, subject to downside risks,... Percent 6 Real GDP Growth 5 4 3 2 1 212 213 214 215 216 217 218 219 22
...and driven by the three largest economies. Contributions to Regional Real GDP Growth, 216 17 23
Outline Adjustment Financing A Broad-based Slowdown Insufficient Adjustment Increasing Vulnerabilities Recalibrating the Policy Response 24
Three priority areas to ensure a stronger and durable recovery: Reinforce emphasis on macroeconomic stability Structural reforms to support healthier macro balances Stronger emphasis on social protection 25
More emphasis on adjustment needed in many cases Hardest-hit resource-intensive countries: Strong fiscal consolidation required, with strong focus on revenue mobilization Where available, greater exchange rate flexibility/elimination of exchange restrictions important Other countries: Where growth is still strong, emerging vulnerabilities need to be addressed from position of strength Infrastructure investment needs to be addressed through higher revenue mobilization to safeguard debt sustainability 26
Reforms needed to support macro objectives Domestic revenue mobilization Greater emphasis on safeguarding financial stability Fostering economic diversification State-owned enterprise reforms to limit contingent liabilities 27
Stronger emphasis on social protection necessary Low growth and widening macroeconomic imbalances risk aggravating social dislocation and increasing poverty Social protection programs often fragmented, not welltargeted, and cover a small share of the population Need to better target these and also use savings from regressive expenditures such as fuel subsidies to help vulnerable groups 28
How about Kenya? 29
Percent Kenya is doing better post Constitution Economy expanding faster Income rising steadily 35. 3. 25. 2. 15. 25.5 3.51 1. 5. 14.54 13.76. 25-1 211-16 GDP growth Growth in GDP per capita Population growth
Percent Some changes in trends in 216: -Some bottlenecks removed (transport). -Telecommunications still the brightest spot. -Real estate pick up may be reversing. -Slow progress in dealing with weatherrelated problems (Agriculture). -Slight pick up in manufacturing (From low base). -Deceleration in construction, financial and trade. 12. Sectoral perfomance 1. 8. 6. 4. 2.. 216 5-yr average
Gross capital formation decelerates in 216 8 7 6 5 4 3 2 1 GDP by expenditure Government consumption Private consumption Gross fixed capital formation (ex transport) 216 5-year average 32
GDP growth (%) Pre-Election Growth 9. 27 Elections 213 Elections 218 Elections 8. 7. Q2 '11 Q3 '6 Q4 '6 Q1 '7 Q2 '7 Q3 '7 Q4 '7 6. Q2 '16 Q3 '16 5. Q4 '15 Q4 '16 Q1 '13 4. Q1 '6 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 3. Quarters before the elections
Percent Percent Growth before elections influenced by agriculture performance 1 8 6 8 7 6 5 GDP growth agriculture sector 4 4 2-2 -4-6 GDP growth agriculture sector 3 2 1-1 -2
Take aways Impact of drought yet to be assessed. Some key sectors show deceleration even before the drought. Revenue mobilization and prioritization of investment needed to ensure attention to social needs. 35
Thank you! The online edition of the Regional Economic Outlook for sub-saharan Africa is now available online at www.imf.org 36