Slow growth in the Sub-Saharan Africa’s two largest economies- Nigeria and South Africa – is weighing heavily on prospects for the region, the IMF said Tuesday in its latest Regional Economic Outlook for sub-Saharan Africa report launched simultaneously in Ghana and Libreville, Gabon.
Sub-Saharan Africa is set to enjoy a modest growth uptick, but vulnerabilities have risen and decisive policies are now needed to both reduce such and raise medium-term growth prospects, the IMF said
Still struggling with a fragile growth after a difficult economic recession, Nigeria recorded a 0.83 percent growth in 2017, though higher than -1.58 percent recorded in 2016.
But the country’s growth numbers would further expand to 2.1 percent in 2018, expected to be helped by improvements in oil production and princes, as well as full year impact of greater foreign exchange availability, the IMF said during its April Spring meetings.
South Africa’s economy which grew by 1.3 percent in 2017 and 0.6 percent in 2016 would expand by 1.5 percent in 2018 and 1.7 percent for 2019, on the back of an anticipated business confidence on the back of a change in the political leadership, though growth prospects remain weighed down by structural bottlenecks.
Average growth in the Sub-Sahara African region is projected to rise from 2.8 percent in 2017 to 3.4 percent in 2018, with growth accelerating in about two-thirds of the countries in the region aided by stronger global growth, higher commodity prices, and improved capital market access.
“The two largest economies in the region, Nigeria and South Africa, remain below trend growth, weighing heavily on prospects for the region,” the IMF stated in the report.
The Fund further noted that external imbalances have narrowed, but that progress with fiscal consolidation has been mixed, with vulnerabilities rising. About 40 percent of low income countries in the region are now in debt distress or assessed as being at high risk of debt distress.
The IMF projects that on current policies, average growth in the region is expected to plateau below 4 percent—barely 1 percent in per capita terms—over the medium term.
Several economies (such as Côte d’Ivoire, Ethiopia, Ghana, Senegal) are expected to maintain robust growth at about 6 percent or faster. At the other end of the spectrum, many countries that saw per capita incomes fall in 2017 could witness a further decline this year.
“The growth pickup has been largely driven by improved policies in some countries, and a more supportive external environment, including stronger global growth and higher commodity prices” said Abebe Aemro Selassie, Director of the IMF’s African Department. “These factors have supported high volumes of capital inflows into the region, facilitating external adjustment and a buildup of reserves in some countries,” he added.
However, Selassie noted that “macroeconomic vulnerabilities are rising in many countries as the required fiscal adjustment keeps getting delayed. 15 of the region’s 35 low income countries are now rated to be in debt distress or at high risk of debt distress”. In some countries, higher debt levels have translated into a sharp increase in debt service, diverting resources from much needed spending in areas such as health, education, and infrastructure,” he said in addition.
Looking ahead, Selassie noted that the “based on current policies, average medium-term growth for the region is expected to plateau below 4 percent, falling far short of the levels envisaged five years ago, and below what is needed for countries to achieve their Sustainable Development Goals.”
He further urged policy makers to seize the opportunity provided by favorable external conditions to turn the current recovery into durable strong growth by taking domestic policy steps to reduce fiscal imbalances and raise medium-term growth potential.
According to him, “Prudent fiscal policy, especially domestic revenue mobilization, is critical to make room for key infrastructure and social spending. On average, there is scope to raise tax revenues by 3-5 percentage points of GDP over the next few years. Reforms to nurture a dynamic private sector are needed to provide the foundations to raise the low level of private investment, for example by boosting intra-Africa trade and deepening access to credit.”
Selassie further reiterated that sub-Saharan Africa remains a region with strong potential to harness its demographic dividend in the medium term – provided strong domestic policy measures are implemented.