Monday, April 24, 2017 09.30AM / IMF April 23, 2017
· Abebe Aemro Selassie, Director, African Department, IMF
· Andrew Kanyegirire, Senior Communications Officer, Communications Department, IMF
MR. KANYEGIRIRE: Good morning and welcome to this press briefing by the African Department. My name is Andrew Kanyegirire. I'm a Communications Officer here at the IMF. We have with us Mr. Abebe Aemro Selassie, Director of the African Department. He will make some quick opening remarks after which we shall open the floor to your questions.
MR. SELASSIE: A very good morning to you all. Thank you for joining us today for this press briefing. Before I take your questions, I want to make some remarks about the macroeconomic situation in Sub-Saharan Africa, the near-term outlook, and the policies and reforms that we think are necessary to basically foster the stronger and durable economic growth that we all seek and create the many jobs that Sub-Saharan Africa needs.
As many of you know 2016 was a difficult year for many countries. Economic growth in 2016 we estimate only reached about one and a half percent, which is the weakest outcome in more than 20 years and well below the rate of population growth. While a number of countries continued to grow robustly the slowdown in growth has been fairly broad based, affecting about two-thirds of the countries in the region. That accounts for about four-fifths of regional GDP. This of course contrasts with the very robust growth rates the region was experiencing in recent years. We have also noticed that inflation has begun to accelerate in some countries, reflecting the widening of macroeconomic imbalances, some currency depreciation, and in a few cases, drought related food price increases. Looking ahead we see a rebound in growth, but only a modest one, so around two and a half percent in 2017. This will fall short of the recent trends and will be barely sufficient enough to deliver any per capita income gains. The uptick in growth is largely driven by one-off factors in the three largest economies— a recovery in oil production in Nigeria, higher public spending ahead of elections in Angola, and the fading of drought effects in South Africa. Sub-Saharan Africa is a very diverse region and this aggregate number hides the fact that there are quite a few countries that continue to grow fairly robustly at five percent, even up to seven percent, particularly in West Africa and also some countries in East Africa. That said, going forward the outlook is subject to considerable downside risks from the external side.
The global environment -- while improving -- remains a challenging one, particularly the financing constraints facing the region. Also, the scope for domestic shocks is fairly significant, either from insecurity or from some countries dealing with drought type situations. In this context, I want to stress how concerned we are about the famine in South Sudan and the severe border security in Northeast Nigeria, which has created significant humanitarian concerns along with the region's conflicts are behind some the problems. These need to be addressed as soon as possible, paving the way for stronger humanitarian systems to be put in place, but more importantly, economic conditions to revert back to normal. Let me also say a little bit more about economic policies. You know, these overall weak economic outcomes have to do with insufficient policy adjustments that we've seen to date. Particularly in the resource intensive countries adjustment has been delayed. In the countries hardest hit by the commodity price decline, especially oil exporters like Angola, Nigeria, and CEMAC, the budgetary revenue losses and balance of payment pressures are continuing. The delay in the much-needed reforms is creating uncertainty, holding back investment, and risks generating even deeper difficulties in the future.
We are also seeing vulnerabilities in many non-resource intensive countries, that are oil importers. While these countries have generally maintained high growth fiscal deficits in a number of cases they are beginning to widen as governments seek to address their development needs. And as a consequence, we've seen debt levels beginning to creep up and also borrowing costs on the rise.
So, in view of these challenges, what needs to be done to restart growth and address the vulnerabilities that we are seeing? We see three priorities to engender stronger and durable growth. First is a renewed focus on macroeconomic stability. This we think is the prerequisite to realize the tremendous potential that the region has. For the hardest hit multi exporters fiscal consolidation will be very important with a strong emphasis on revenue mobilization. This is needed to halt the decline in international reserves and to offset the permanent revenue losses, especially in the CEMAC region. Elsewhere exchange rate flexibility is another issue. Wherever there is scope for exchange rate flexibility, I think that flexibility has to be used, including by eliminating the exchange restriction to help absorb the shocks that these countries are subject to.
For other countries in the region, and in particular those countries where growth is still strong, it will be very important to address emerging vulnerabilities from the position of strength that many of these countries are now in. While the expansionary policy, fiscal policy has been appropriate, now is the time to shift towards gradual fiscal consolidation. Higher revenue mobilization is needed to safeguard debt sustainability and the efficiency of investment spending would need to be enhanced. We see a second priority being structural reforms to help support macroeconomic rebalancing. In particular structural measures are needed to help improve the fiscal accounts to a more sustainable position. This includes reforms like revenue mobilization with a focus on shifting away from the focus on relying on commodity related revenues and debt financing to more robust sorts of tax revenue. There's also the need to strengthen public finance management systems and frameworks, to do better project selection. Important here also at this juncture where we are seeing bank balance sheets being impacted, is the strengthening of financial supervisory capacity. Finally, policies to foster economic diversification will be very important in the coming years, again with a view to moving countries away from commodity dependence where that is the case. Third, another important area of focus, particularly at this juncture, is going to be strengthening social protection mechanisms to help alleviate the impact of the current slowdown on the most vulnerable groups. At this juncture, you know, reflecting the low growth and widening macroeconomic imbalances, of course we see significant risk of social dislocation in the coming months. We were seeing a bit of decline in poverty in the region over the last many years. Existing social protection programs in the region are often fragmented, not particularly well targeted, and generally cover a very small share of the population. We see tremendous scope to better target these programs and use the savings from aggressive spending on other parts of the budget -- such as fuel subsidies -- to better target these resources to help vulnerable groups.
Before ending, I just want to say that we see Sub-Saharan Africa as being a region of tremendous potential and have no doubt that in the coming years we'll begin to tap into this potential. However, reaping this potential requires strong and sound domestic policy measures, as I just laid out. The earlier that these can be put in place the earlier the prospects of a stronger recovery. Let me stop here and just mention that our twice yearly regional economic outlook for Sub-Saharan Africa will be launched on May 9. The launch events will take place in Abuja and Dakar. Thank you very much.
MR. KANYEGIRIRE: The remarks that have just been delivered are available in various languages. My colleague, Lucy, has got them there with her, she will pass them around. We have about half an hour. We request you keep the questions short. I know there's quite a bit to go through, I suspect. And we shall start with a round of three questions.
QUESTIONER: We come here every year and we hear these figures, 2.6 percent growth this year, 3.5 percent last year. What does it mean for ordinary people in Abuja and Lagos especially when millions of remain unemployed?
QUESTIONER: The outlook generally for Africa is usually probably 5 percent GDP growth. If you go to Europe they are actually celebrating say, for instance, 2 percent GDP growth. They are celebrating this as high heaven. And the level of social mobility is very high in this region. Now, go to Africa, we have 5 percent, 4 percent, 6, 7 percent GDP growth and yet the level of poverty is very high terrible social mobility factor. How do we put this issue of GDP growth into perspective in a way that Africans, Sub-Saharan Africans do not become economic migrants?
QUESTIONER: This frightening figure of economic growth lagging behind population growth. Can you just dig into that a bit more and tell us how long you expect that to last, and how that fits with the patterns we’ve seen over the past decade? And, secondly, if we had been here two, three years ago under the commodity boom we would have been talking about an African rising narrative. A profitable future looming ahead for Africa. I wonder, is it now time to say that the commodity super cycle was wasted?
MR. KANYEGIRIRE: We’ll take these three for now and then we’ll take another round.
MR. SELASSIE: I think the first two questions are related. I think it’s important to not conflate the level of income in the region with the rate of growth that we talk about in our reporting today. So, yes, I mean, Africa’s starting from a very low level of -- many countries in Africa are starting from a low level of income and reflecting that they have been growing rapidly. So, when you talk about growth we are talking about the pace at which countries are beginning to try and close the gap with those countries that are at the higher income levels.
What does it mean tangibly? Year to year it’s difficult to show the tangible changes when we talk about GDP growth. So, I think it’s important to take a broad sweep of time and think about the incredible transformation in most countries in Africa. And there are very few which haven’t been affected over the last 15 to 20 years where we have seen huge improvements standards of living.
And I measured this is various dimensions, not just income levels, but also other more intangible things which we don’t, talk about often enough. So, if you look at, indicators like the general mortality rate, infant mortality rates. These are, measures which affect the most vulnerable in society, in particular, in a region like Africa. Those have declined tremendously. As I mentioned, poverty levels have declined, by no means as fast as we would like to see them to be, but they’re certainly much lower than they were. So, in this 15 to 20-year period, if you compare, the situation in many African countries from the early 90s compared to now, there has been a huge transformation in all of these cases. So, that’s what sustained growth of five, six, eight percent delivers over time. And you see if you compare now versus the long -- as I said, ten years ago, 20 years ago -- that’s a tangible impact of growth that we’re seeing.
Turning to per capita income terms. The fact that it’s lower now, yes, but I think, again, it’s really important too -- for me to underscore, the very diverse set of outcomes even with growth in the region at the moment. So, you have negative per capita income growth if you look at the region are likely to get, and then with, you know, help of population growth for the region. But if we actually look across countries the reason why the regional aggregate is depressed right now is because growth in the largest countries, in particular, Nigeria, Angola, and South Africa is very low or really even negative. Medium growth rate is of the order around 3.7 percent. So, I would say in the medium country you’re still seeing per capita income growth, albeit a modest one. But, for the region as a whole, of course, the picture is not a strong one. And going back to stronger per capita income growth rates depends a lot, for the region as a whole, depends a lot on what’s going to be happening in the three large countries that I mentioned.
I want to underscore here, again, the developments over the last 15, 20 years have not just been a commodity story, and that’s important. If you actually look over this period high commodity prices, the lion’s share of countries in the region don’t actually export commodities. So, countries that benefited over that period from the commodity story are those -- the oil exporters, other hard metal commodity exporters whose benefits -- whose prices rose. If you actually look at a country like, I don't know, say Kenya it was importing commodities, like oil, so it actually wasn’t being impacted by negative terms of trade over this period. There are quite a lot of countries that were impacted in the region adversely by the commodity story, and yet, countries improved the economic outcomes, continued to have invested in health, education, infrastructure. So, it hasn’t called in a commodity plane, and even in those countries, which have been commodity exporters, we have seen significant improvement in human development outcomes. So, I think it would be unfair to say that the commodity super cycle has been wasted. It certainly would be better if many countries had saved a lot more than they did over this cycle. But, there’s been, of course, tremendous pressures also to spend and invest those resources also.
MR. KANYEGIRIRE: So we’ll take another set of three questions please. Lady at the back.
QUESTIONER: Thank you. I’d like to ask my question in French. I would like to know whether the increase in fiscal debt is a good measure for economists, for example, in the Central African region which is already weakened?
MR. KANYEGIRIRE: The lady in blue. Can you put your arms up so I can see you quickly? Thank you.
QUESTIONER: I’m actually wondering during the period that Nigeria was witnessing tremendous inflation, at that point the Naira was being floated. And now we have some sort of control by the Apex Bank, and we hear the IMF wants Nigeria to float the Naira. I am wondering, Egypt is floating and they are battling with a serious kind of inflation. Would you say we are operating different kinds of markets for North and Sub-Saharan Africa?
QUESTIONER: Mr. Selassie, can you please comment about bond notes in Zimbabwe? What do you think of the concept, and how do you think that system should evolve? How will that experiment be concluded?
MR. SELASSIE: On the question of fiscal policy and our general position on the policies in the CEMAC more broadly, and our engagement there, I think I want to hark back to the summit on December 23rd in Yaoundé with the heads of state of the CEMAC countries. After a day of deliberation and some discussions preceding that, they -- laid out the review on how to tackle the challenges that the region is facing and -- requested IMF assistance through that. But even before they had requested our assistance they had embarked on a fairly aggressive fiscal adjustment to try and address the decline in oil. Five of the six countries in the region had oil exporters, so they had lost quite a lot of fiscal and export revenue, and have been trying to address the challenge posed by that. And, a couple of the countries, CAR, but also Cameroon have been impacted by the ongoing conflict from the Boko Haram spillover into Northern Cameroon. So, they have been contending with multiple shocks, and finding the circumstances to be quite challenging, and so they requested for our support. And so, what we are doing -- what we are supporting them with is trying to have a fiscal policy package that is robust, sensible, with a lot of reliance on revenue mobilization, in particular, to try and bridge the deficits that they have seen. And, importantly also, working on social protection measures to try and impact any adverse impacts from the required reforms on vulnerable groups.
On Nigeria, I’m amazed that our engagement, our discussion with Nigeria is always distilled to the foreign exchange policy. We just published an Article IV Staff Report on Nigeria and it’s available on the website, and I would urge you to look at that. But, what Nigeria needs is a broad set of policies and reforms to try and address this tremendous shock that has been affected by the decline in commodity prices, of course, but also the insurgency in the Northeast. And, from time to time the problems that have been flaring up in the Delta. They have been faced by these exogenous shocks, domestic policies have also -- there’s a need to adjust domestic policies in a robust way. Most important, perhaps, is the fiscal policy. There is a big gap in that, traditionally there has been extensive reliance on oil revenues and now that that’s not available I think there’s alternative means of funding the government’s operations that are immediate. So, that’s an important policy aspect.
Monetary policy and exchange rate policy, of course, are also an important tool. Our view here is that, given the scarcity of reserves it’s important for the exchange rates to reflect, and try to absorb some of the shock that has resulted from lower export revenue receipts being forthcoming at the moment.
So, yes, ideally you want to see more exchange rate flexibility to try and absorb that. But, how quickly you move towards that framework is something which is up to the government, of course.
Lastly, on the bond notes in Zimbabwe. This is something we are beginning to look at. It’s, of course, a recent phenomenon. Zimbabwe is in a very, very difficult situation, as you know. There’s a limited amount of foreign exchange inflows coming in and no monetary policy tool. So, they are in a difficult circumstance right now. We think that, going down this one note route, in and of itself, will not address the challenges that the country has. So, it’s very important to have a more comprehensive policy package which also addresses a lot of the fiscal challenges that the country faces, a lot of the structural reforms that have to be done. So, it’s, again, more of a holistic package of reforms that are required to get Zimbabwe out of the place it’s in right now.
QUESTIONER: Ghana is in a program right now. There’s currently a debate as to whether the program should be extended or not. And as per your own schedule, April 2018 the program should end. Now, looking at all the things that Ghana has to do, do you think realistically that Ghana can implement all those targets and reforms by April 2018 or there might be the need to extend the program beyond 2018? A matter of fact that some have argued that if we push ahead and end April 2018 it could be a crush program, it could have some shocks for the economy. What’s your recommendations or recommendations to the Ghana government? And also, there are proposals that we should go back onto the international capital market and maybe issue a Eurobond. Even though the Vice President has said that this is something that is not on the table right now. Is this something that you advise the government to look at internally or tapping into to expand our Fund expenditure? Thank you.
QUESTIONER: The IMF’s African Department recently published a paper on structural transformation in Africa. It concluded that Sub-Saharan Africa would not be able to transform to manufacturing in the way that East Asia did. Did you think that’s, right? Do you agree with that? And I have a couple follow up questions. One, is manufacturing special? That is, does the transformation have to take place through manufacturing specifically? And, secondly, if a government came to you determined to implement an industrial policy to promote manufacturing are there some general principles that would allow that industrial policy to maximize its chances of success? Are there some general principles for going right in this industrial policy?
QUESTIONER: I have two questions related to Mozambique. First, what are the obstacles that currently exist for the IMF support program in Mozambique? What are the obstacles that are still there?
What’s your opinion about raising the minimum on salaries? Do you expect those on the secret loans to be published, including the names of the people responsible?
MR. SELASSIE: Thank you. On Ghana, should the program be extended? I mean, ultimately, this is something that is up to the government. From our side, as you noted, the arrangement has one more year to run. The program is facing some headwinds. In particular, there was a big significant fiscal slippage last year, relative to the targets. So, to get to the program, as you noted, there would have to be a fairly significant, you know, fairly forceful significant adjustment over the coming year. So, what is important though is not just the amount of fiscal adjustment that has be done, but also, the government’s ability to restore confidence by pursing and addressing structural reforms that the economy needs. Here I want to highlight in particular the kind of reforms that need to be done in the state-owned enterprise sector, which has been a source of pressure on public accounts and impacting the banking system also. So, I think tackling those would also be very important in the coming months.
Ultimately, I think the government has asked for time. They are considering how best to move forward with the program that the country has with us. And, we are happy for the government to finish its deliberations. And, we have already had one mission there and we also initiated the Article IV discussions. So, we’re in discussions, and we shall let you know as soon as a decision has been taken by the government.
On whether a Eurobond should be issued. And again, [what is] important really, is getting the fiscal path and getting to a point, - getting the fiscal accounts to a level - which makes sure that debt stops accumulating and that it will be on a clear downward path. That’s the whole objective of the program. And then, on whether to finance targeted deficits via the Eurobond or domestic market. The pros and cons on that are a technical matter and will have to be looked at from the context of, the ideal debt management considerations. So, those are my thoughts on that.
On manufacturing in Sub-Saharan Africa. I think, we were not at all categorical in saying manufacturing is not possible in Sub-Saharan Africa, far from it. I mean the first point I want to stress is that structural transformation is imperative in Africa. It is both -- a consequence of strong economic growth and increased productivity. And also, a factor that contributes to strong economic growth and stronger productivity growth.
So, it is very important and something which our countries aspire to and we strongly support. And whether it’s going to be by countries doing more manufacturing or doing more exports or agriculture products, I think it will depend on the country’s circumstances. So, my view is that, countries with very significant populations which are close to the coast, will probably indeed do a lot more manufacturing. And maybe not if you are a landlocked country, but if you do, it will be mainly, to export within the region rather into global supply chains. I think the circumstances are going to differ. This has been an ongoing debate and again, it’s very difficult to generalize. But it depends from country to country how you want to go about promoting structural transformation. In some countries, the constraints are really very basic. And it’s like not having enough power supply. So, in those kind of countries, its addressing that and finding ways to reduce indirect costs for manufacturers like, getting good road and rail networks, and getting goods to the market.
The way I see it, what is really paramount for the structural transformation process is countries engaging in the production of tradable goods. I think what matters whether it’s agriculture or manufacturing type good, what you do is that you produce less for the internal market and more for the external market. Because, basically, if you are constrained by the internal markets, you don’t grow as much. Well as it is by producing for external markets, that matters. So, getting that shift to greater export emphasis is what’s really important. At the seminar this morning, and Don Kaberuka made the point that - I think he said Vietnam has a per-capita income export of around $30,000 compared with $400 or $500 in Ethiopia. And a lot of that 30,000 actually is agricultural commodities. Still, whilst they have a lot of manufacturing they still have a lot of agricultural commodities. So, how we get countries to do a lot more exports for the external market is what matters. I think that’s the key point on the structural transformation agenda. So, industrial policy, etc., again, it depends. If you have addressed all the bottlenecks or if have found ways to help reduce direct costs, then maybe there is scope for industrial type policies. But I think, getting the basics right in many cases is what is important.
On Mozambique, we have an agreement with the government that three things need to be in place. And we need three things before we can have a program-type engagement. I think the first one is completion of the audits that are ongoing. So, we’re waiting for results of the audit. You know, what will be in audit, I cannot prejudge. We have to see what is in the audit. But the terms of reference of that audit are very clear in trying to understand exactly what happened with the proceeds of the loans that have been taken out by the three enterprises. Second, I think is that, there are indications that the debt picture in the country is not looking good. So, some kind of debt re-profiling will be necessary and important to get more a sustainable debt path. So, this is something the government is working on. And then lastly, we have to agree on policies to support the program. So, I think once those three are in place, we can move forward.
MR. KANYEGIRIRE: Four minutes left. We can probably take two very brief questions.
QUESTIONER: In your last publication on Ghana with regards to the currency, you revealed that the authorities had put on hold the auction of dollars to deal with the problem of the currency. What would you say, because a lot of things they have been trying to do to deal with the cedi are still not working. What would you say authorities must do this time around to get it right?
And then my second question, quickly, has to do with the Vice President yesterday told us that Ghana would issue a 15-year bond to deal with the energy sector debt. Would you say that is a way to go in dealing with this issue?
MR. KANYEGIRIRE: One last very quick question please.
QUESTIONER: One of the recommendations is improving tax in the region? How do you expect this to happen? Do you have recommendations on improving tax?
MR. SELASSIE: Frankly, I am not aware of any reference to the auctions from the report that you mentioned. As a general point, I think, you know, the conduct of monetary exchange rate policy in Ghana has generally been okay. I think the bigger problems have been the fiscal stance, which has been the main challenge in Ghana. And that has a complicated management of the monetary policy. I’m happy to see that inflation has started to decelerate in recent months, reflecting the fairly appropriate policies that the Bank of Ghana had been pursing over the last year, year and a half.
Of course, the monetary tightening that took place has also helped to keep the cedi strong, but I think that’s an effect of the monetary policy stance rather than an explicit effect to target an exchange rate. On the financing for the state’s owned enterprise sector or the energy sector, this is the first time I’m hearing the proposal by the Vice President. But the key for us I think, as I said, is really trying to identify the sources of the deficits, quantifying them, and having the policies that are necessary to begin addressing those deficits. And then we can, how it’s financed comes next and so I think that we’re still in that first stage.
On Nigeria and tax revenue. Yes, the economic circumstances in Nigeria are difficult. But this is also a country of tremendous wealth. And ways can be found to mitigate the impact on the poorest from any of the new taxes that are introduced. But the fact is that, you know, when a country has moved from a period when oil prices were $100 for five or six years or more to where they are now well over $50 that is a huge hit to the income of the country and the government’s revenue. The government has a lot of goods and services that it has to provide and a lot of the public services that it has to provide which need to be financed and alternative sources of financing have to be found for that. Which particular tax handle they want to use, of course, is up to the government. But without that, the government’s objective of addressing poverty - you need infrastructure investment to be able to do that, you need to build some more schools, you need to invest more in health and education - all of this requires resources. So, it’s imperative for the government to be able to address its long-term developed agenda to have tax handles to be able to generate revenues.
Again, there are ways to mitigate the impact on the poor. But without that, you can also not have the development that the country seeks.
MR. KANYEGIRIRE: Thank you very much. We shall end on that note. Thank you, Abebe. And thank you all for joining us.
MR. SELASSIE: Thank you.