IMF Sees `Subdued’ Growth Outlook for Sub-Saharan Africa

LAGOS (Capital Markets in Africa) – Sub-Saharan Africa’s economic growth outlook is “subdued” as the region’s oil producers delay policy adjustments needed to trigger and sustain expansion momentum, the International Monetary Fund said.

The area’s gross domestic product will probably expand 2.6 percent this year from 1.4 percent in 2016, the IMF said in an emailed copy of its Regional Economic Outlook. The modest recovery from the worst performance in more than two decades last year will be driven by better oil production in Nigeria, higher public spending before elections in Angola and the fading of drought effects in South Africa, it said.

“The underlying regional momentum remains weak and at this rate, sub-Saharan African growth will continue to fall well short of past trends and barely exceed population growth,” it said.

Investor confidence in South Africa suffered when President Jacob Zuma in March fired his finance minister, Pravin Gordhan, who was pursuing fiscal discipline at the Treasury after lower commodity prices and drought stagnated growth. In Nigeria, low prices and output of oil, the nation’s biggest export, and resulting foreign-currency shortages caused GDP to contract 1.5 percent last year. The IMF forecasts both economies will grow 0.8 percent in 2017.

Zuma’s move led to an S&P Global Ratings downgrade to junk status, a development the IMF sees leading to higher financing costs, but not causing a “major bottleneck” to raising funds. South Africa has “deep and liquid financial markets, so the government has options to borrow domestically,” IMF Africa Department Director Abebe Aemro Selassie said in an interview on Tuesday in Abuja.

In non-resource countries such as Ivory Coast, Kenya and Senegal, “public debt is on the rise, borrowing costs have increased, and in some cases, arrears are emerging and non-performing loans in the banking sector are increasing,” the IMF said.

Revenue Losses
Nigeria, which vies with Angola to be Africa’s biggest oil exporter, and the Central African Economic and Monetary Community states are still struggling to deal with budgetary revenue losses due to low oil prices, it said. Delayed policy adjustments may generate into even-deeper difficulties if unaddressed, the IMF said.

“For the hardest-hit resource-intensive countries, fiscal consolidation remains urgently needed to halt the decline in international reserves and to offset permanent revenue losses,” it said. Greater exchange-rate flexibility and eliminating exchange restrictions “that are inflicting serious harm on the real economy should be part of a coherent policy package” in Angola and Nigeria, it said.

The Central Bank of Nigeria introduced a window where portfolio investors could trade foreign currency at market-determined rates. The regulator has intervened in the market to keep the Nigerian currency at about 315 a dollar since it removed a 197-199 naira-dollar peg in June. That, and blocking importers of certain products from accessing foreign currency in the official market, caused the black market to thrive and discouraged investment.

The outlook is also clouded by drought, pests, and security issues that have contributed to about half of sub-Saharan African countries reporting food shortages, the IMF said.