The macroenonomic outlook for sub-Saharan Africa continues to strengthen, with growth expected to increase from 2.7% in 2017 to 3.1% this year, the latest ‘Regional Economic Outlook’ report published by the International Monetary Fund (IMF) shows.
The higher growth reflects domestic policy adjustments and a supportive external environment, including continued steady growth in the global economy, higher commodity prices and accommodative external financing conditions, the report states.
“While fiscal imbalances are being contained in many countries, the adjustment has typically occurred through a combination of higher commodity revenues and sharp cuts in capital spending, with little progress on domestic revenue mobilisation,” it notes.
Over the medium term, based on current policies, growth in the region is expected to accelerate to about 4%, which is too low to absorb the likely flow of new entrants into labour markets, the fund adds.
The IMF says more progress on domestic revenue mobilisation is needed to ensure debt sustainability and to create fiscal space for much-needed investment and development spending.
The fiscal adjustment, thus far, largely reflects the oil price rebound for oil exporters, coupled with sharp cuts in capital spending in several countries.
With few exceptions, there has been relatively little progress in strengthening domestic revenue mobilisation; many countries have delayed adjusting domestic fuel
prices in response to the recent oil price increase, resulting in the re-emergence of energy subsidies; domestic arrears remain large, contributing to a build-up in nonperforming loans (NPLs); and, beyond the central government, State-owned enterprises are becoming a major fiscal risk in some countries.
Further, the IMF notes that financial sector vulnerabilities remain elevated with high NPLs weighing on banks’ balance sheets and constraining credit to the private sector.
On the external side, financial inflows were strong in the first half of this year, with record issuances of Eurobonds, but the recent turbulence in emerging markets has led to some increase in spreads.
Reserve buffers have however, generally, not been rebuilt and, in half of the countries in the region, remain below levels considered adequate.
The outlook also points to significant downside risks, particularly considering the elevated policy uncertainty in the global economy.
Shielding the recovery and creating enough jobs for the region to harness fully its demographic dividend would require strong, sustainable and inclusive growth.
“Achieving this, in turn, would require policies to strengthen resilience and facilitate the reallocation of labour and capital into more productive sectors to lift incomes faster.
“These policies include steady fiscal consolidation to reduce debt vulnerabilities;
advancing revenue mobilisation; enhancing the efficiency of expenditures, in particular to address the re-emergence of wasteful energy subsidies; allowing greater exchange rate flexibility where institutional setups permit and barring balance sheets vulnerabilities; addressing growing financial sector weaknesses in a timely manner; and pursuing policies to foster private investment and enhance potential growth,” the IMF says.