The International Monetary Fund (IMF) has forecast that economic growth in sub-Saharan Africa will fall to its lowest level in more than 20 years, while lamenting a “slow and piecemeal” policy response among governments.
Projected growth for the region is set to decline year-on-year to 1.4% in 2016, down from 3.5% last year, and below the peaks of over 5% the region experienced between 2010 and 2014. The IMF blamed weak commodity prices and a tightening of the global financial markets for the poor economic outlook affecting most of the 45 countries that make up sub-Saharan Africa.
Oil-exporting countries, such as Nigeria and Angola, have seen a sharp fall in revenues due to the global slump in oil prices, and the governments of commodity-dependent countries have been slow to implement policies that could help boost private investment, Abebe Selassie, director of the African department at the IMF said. In its latest regional economic outlook for Sub- Saharan Africa, released today, the IMF lamented a “slow and piecemeal” policy response among the hardest-hit countries.
The Fund argued that many such countries were overly dependent on “stopgap” measures, including central bank financing and the accumulation of arrears, leading to rapidly rising public debt. Furthermore, oil-producing countries have been too reluctant to allow exchange rates to adjust, said the Fund, placing pressure on foreign reserves.
Earlier this year, Nigeria finally agreed to allow its currency to depreciate under heavy market pressure after months of pegging the naira at an artificially high rate. A “high prevalence” of 60% of African countries operated under a peg in 2014, according to the report.
In response, the Washington-based lender urged renewed policy consistency, including tightening monetary policy to tackle sharp increases in inflation and “growth-friendly” fiscal consolidation to avert future debt crises. However, Selassie said that 19 countries “continue to enjoy robust growth, including the likes of Ethiopia, Senegal, and Tanzania with economic output set to expand by 6% or more by this year, ” and warned that “we should guard against swinging from the strong optimism of the recent years about the region’s economic prospects to the excess pessimism that seems to be seeping in.”
In the long-term, however, economic activity will increase modestly in the region, with the IMF forecasting growth to reach 3% in 2017, but only if the necessary reforms are implemented in under-performing countries. In particular, commodity-dependent countries will continue to face difficult market conditions, so a return to strong growth will require allowing exchange rates to absorb the external pressures these countries currently face, while containing budget deficits and inflation, said Selassie.