Tuesday, June 30,
2020 / 09:47 AM / By IMF/ Header Image Credit: IMF/Ecographics
MR. VILKAS: Thank you for joining us virtually for this press briefing. My name is Gediminas Vilkas, I'm with IMF Communications Department. Today's press briefing is on the Update of Regional Economic Outlook for Sub-Saharan Africa. And today we have Mr. Abebe Aemro Selassie, the Director of IMF African Department.
He will give introductory remarks and then afterwards we will have a time for questions. So, please send your questions as you always do via online Media Center, or via media@IMF.org.
So, without further ado, I give the floor to Mr. Abebe Aemro Selassie, please.
MR. SELASSIE: Thank you. Good morning. Thank you all for joining us again as we introduce the June update of the Sub-Saharan African Economic Outlook, Regional Economic Outlook.
It's only been about 10 weeks since we last presented our outlook for the region, and the key concerns we outlined in April very much remain in place. This is a fast-moving crisis, and recent developments have been striking, both in Africa, but also across the globe.
So, before I take your questions, I would like to briefly cover what we've learned over the last couple of months, concerning the path of the pandemic in the region, and its impact on the region, as well as the policy options challenging our authorities.
Sub-Saharan Africa's economy is now expected to contract by 3.2 percent in 2020, this is double the contraction we expected in April. It represents by far the worst record -- by far the worst performance on record. It implies a 7 percentage points swing from the growth we were expecting prior to the crisis for 2020.
In more practical terms the crisis represents a significant hit to the livelihoods of some of the world's most vulnerable households, and will push per capita incomes back to where they were several years ago.
Over the past two months, the growth rate of new infections has continued to fall in some countries leading them to ease containment measures. But it is too soon to rule out the pandemic trajectory that we've seen elsewhere, and the case for vigilance remains as strong as ever in all countries.
The region now has confirmed more than a-quarter-of-a-million cases, the new cases are still doubling every two to three weeks. For the region as a whole, the number of cases still growing, and the pandemic very much remains in its exponential place. In this context and in light of the region's already-stretched health care capacity, the immediate priority of course remains very much to protect lives, and to do whatever it takes to strengthen local health systems and contain the outbreak.
And indeed countries have acted swiftly to support the economy, but these efforts have been constrained by falling revenues and limited fiscal space. Even before the crisis, death levels were elevated for many countries, limiting their ability to respond.
So far the countries -- the Sub-Saharan African countries have announced COVID-related fiscal packages averaging around 3 percent of GDP. This is an impressive and much needed effort, but it has often come at the expense of other priorities such as public investment, and is of course markedly less than has been seen in other emerging market countries, and indeed advanced economies.
Most Sub-Saharan African economies also face the distinct challenge of getting support to those who need it most. A large share of the population in many countries engaged in the informal sector where the impact of the lockdown has been particularly harsh. Coupled to this is the absence of safety nets that cover a significant share of the vulnerable in society.
Consequently, poverty levels are almost certain to spike this year in many countries. The World Bank, for example, estimates an increase of about 20 million in the poverty numbers for 2020.
In the face of this, many governments have done what they can to temporarily expand their safety nets using homegrown often innovative approaches to ensure that transfers reach as many of their population as possible.
Looking ahead, a number of key policy priorities stand out. I want to reiterate that the priority at the moment very much remains the preservation of health and lives, so that has to be the -- you know, the central focus at this time. We think that it's only when the caseloads have declined significantly and remain low for a sustained period, that a gradual and cautious shift from the broad fiscal support to more targeted policies is called for, concentrating, as always, on the poorest households, and those sectors hardest hit by the crisis.
And once the crisis has waned, it will be important to policy themes that have emerged will need to be pursued aggressively alongside existing reform agendas, the elimination of policy-induced distortions, reconsider policy priorities. An important issue will be strengthening resilience, rethinking social nets, facilitating digitalization, adaptation to climate change. But these new sustaining investment in human capital, facilitating stronger private sector development, if countries are going to enjoy strong recovery in the coming years.
The region cannot tackle these challenges alone, and a coordinated effort by all development parties hold the key, the IMF has modified the Catastrophe Containment and Relief Trust, CCRT, to provide immediate debt service relief for its poorest and most vulnerable members, and also doubled access limits under its emergency lending facilities.
In total, over the past 8, 10 weeks we've provided some $10 billion to Sub-Saharan African countries so far, and a number of other -- a number of discussions are ongoing with several other countries.
In addition, of course the G20 has announced the Debt Service Suspension Initiative, which allows the world's poorest countries to suspend their debt service payments through the end of this year.
Nonetheless, most international supports are needed urgently. This year alone countries in the African region face an additional financing need of over $110 billion, and despite the best efforts of the international community so far, there is still some 44 billion of this that remains unfinanced.
I want to conclude, perhaps by stressing my ongoing faith in Africa's strength, resilience and potential. I know our authorities are working diligently to protect the region from the worst of this crisis, but I also know that the international community supports will be critical. In both allowing countries to have a more effective response in the near term, and ultimately placing the region back on a more sustainable development path over the long run.
Thank you for your attention, and I'm happy to try and answer your questions.
Regional Economic Outlook Update: Sub-Saharan Africa, June 2020
MR. VILKAS: Thank you, Abe. And we're getting many questions. We'll try to address them as much as possible. So the first question is from Mr. Simon Ateba, he's from Today News Africa. And he's asking about the figures, "IMF has projected that the economic growth in Sub-Saharan Africa will contract by 3.2 percent in 2020? This is more than double its projection in April, meaning that things will be worse than previously thought. For people who do not understand what minus-3.2 percent means, what does it mean in terms of loss of revenues? And how many billions are likely to be lost in Sub-Saharan Africa due to COVID-19 in 2020?"
And I'll add another question, because he's asking, so it's more about the figures also, "We know that Egypt secured $5.2 billion loans from IMF on Friday. Nigeria, Ethiopia, Ghana and others secured billions of dollars in April, and the trend has continued as the crisis escalates. How much has been loaned by the IMF so far for countries in Sub-Saharan Africa to beat COVID-19? And are you concerned about the risk of insolvencies, countries unable to pay back those loans?"
So just to remind the question about, what does it mean in loss of revenues? And what is the total amount that IMF is lending to Sub-Saharan African countries, and about the risk of insolvencies, are you concerned about that? Thank you.
MR. SELASSIE: Thank you, Gediminas. So, you know, on the first question in terms of what this practically means. I think what the -- you know, the size of the economy, the Sub-Saharan economy, total output, all of the production that, you know, the entire region produces will shrink by 3.2 percent, that's our best estimate of what's happening.
Now, this of course will vary from country to country, there will be some countries where the decline will be the contraction in income levels where the country as a whole will be much greater than this 3.2 percent.
For example the small island economies, tourist-dependent economies that have been hit very large, also quite a number of the oil exporting countries will be hit very significantly, because oil prices have declined. So, it's been a double whammy for them, the impact of the COVID pandemic within the country, as well as losing quite a significant share of income generating from oil.
So, for the region as a whole, we're looking at a decline in income by about 3.2 percent. Now, because population growth is -- population growth continues to increase every year, so person basis per capita, for individuals this will amount to a decline income of around 5.2 percent, so it's a significant hit to standards of living, to wellbeing.
But again, I want to stress that this is a number that varies from person to person depending on circumstances, whether, you know, people have been able to retain their jobs. So, it's an average figure which tries to give a sense of what's going on in the region.
In terms of IMF support to countries in the region, of course, you know, we are the premier institution there to help countries when shocks like this hit them. Before we lend, one of the important things we look at is whether a country can repay the financing that we're providing. You know, so we will not lend in circumstances where debt is clearly unsustainable.
So, the money we're providing of course is needed, exactly because countries at the moment do not have much access to foreign capital markets, domestic capital markets are constrained. Of course they've been losing a lot of tax revenues, this is why they turn an institution like the IMF, and of course, you know, we've been created by the international community exactly to come to support countries at a time like this.
There's a separate issue of course about, you know, whether countries that were already in debt difficulties, you know, what kind of circumstance faces them now that they've been hit by this crisis. Of course those countries, their balance sheets will be much weaker, and some will even be -- will be in a position where they will not be able to repay their debts.
For those countries it will be important, of course, for them to get debt relief from their creditors, and we of course work with those countries to try and understand how much debt relief they need, and give policy advice as needed.
MR. VILKAS: Thank you. There's another question from Kenny Osukoya, he's Editor-in-Chief with Africa Bazaar Magazine. So, he's asking something about the recovery and labor -- also additional question on labor market.
So let me read that question. It's a little long, but I'll try to shorten it. "In your notes you mentioned that once the current pandemic ebbs, authorities should gradually shift their focus from broad fiscal support to more affordable targeted policies, concentrating in particular on poorest households and those sectors hit hardest by the crisis. What are some of these targeted policies and sectors that would enable countries to quickly get back on track, as well as help them address the new normal that we are seeing in all countries?"
And he is also adding a question on the labor market, saying: that prior to the crisis, labor markets in Africa in terms of job creations admittedly lag behind addressing the expensive needs of their working-age population in creating jobs. How can authorities scale up their labor markets to create jobs to meet the need of this young population?"
MR. SELASSIE: Thank you. So, the question in two parts, one I think, what kind of policies are needed for the -- on the labor market more narrowly. So, you know, we think that this is a pivotal moment for countries in Sub-Saharan Africa. Many of the factors that avoid high economic growth, strong economic performance over the last 8-10 years, have weakened, so the global economic environment was fairly supportive over the last many years.
We also had a lot of capital inflows into the region of course. Commodity prices were high supporting those countries that are commodity exporting countries. And importantly also, countries had significant fiscal space, so they could that fiscal space to invest in health, in education, in infrastructure, and all of these things have supported growth.
Countries were also pursuing reforms very aggressively, and it's a combination of this which led to this period of very strong growth in the region, and improvement in development outcomes. At the moment we've seen disruption to many of those supportive factors, capital markets have turned, you know, capital is flowing out of the region rather than towards the region in most cases. Commodity prices are of course low, global environment is weak.
So, I think it's important that countries rethink their development models, reconsider what's going to be important sources of growth going forward, and develop new development plans.
Important ingredient in all of this we feel, is going to be looking to generate domestically, more economic activity domestically so, you know, thinking about, you know, how to, what are the best sectors to try and engender growth in are all among the policy priorities countries are going to have to think about. And of course these policies are very country specific and, you know, we look forward to working with countries on those areas.
Now turning to the labor market, I think, you know, one thing in common for the vast majority of countries of course is the fact that, you know, you have this significant number of young people coming into the labor market. So the growth and development policies that countries have to develop will need to pay heed to that and be as labor intensive as possible, have to, you know, prioritize ways of creating jobs for the young that are reaching working age population. So I think in terms of labor market dynamics, I think, you know, growth strategies have to pay heed to that and try and be as labor intensive as possible.
MR. VILKAS: Thank you. We have a few questions on debt and debt relief. The first one is from Eshete Bekele from Deutsche Welle. Asking how the pandemic and subsequent economic slowdown will impact the debt payment plan of countries like Ethiopia in horn of Africa?
And also on debt we have a question from Mario Batista from Lusa News Agency. And he's asking could you elaborate on the suggestion made in the report for countries to engage with the private creditors, given the risk of downgrades by the rating agencies. Wouldn't that make it harder for sovereigns to access funding in the future? So we have two questions on that.
MR. SELASSIE: On the evolution of public debt, as I noted earlier, before the crisis we already had a situation where debt levels in many countries had been increasing over the last eight, 10 years and were approaching levels where significant additional borrowing capacity was not present for the vast majority of countries. And, you know, countries were in a phase where they were reducing the amount that they were planning to borrow over the medium term and strengthen their fiscal accounts, so expectation was that the debt to GDP ratio in the vast majority of countries, would be trending downwards.
With the shock, of course, what we are likely to see is that as GDP economic output has been impacted, we're now likely to see an increase in the debt to GDP ratio for the vast majority of countries in the region.
African countries are not unique in this. I think this is going to be a hit to all sovereign balance sheets, frankly corporate balance sheets, household balance sheets. So, you know, there will be a lot more countries under even more strain than before covid hit. Which is exactly why we felt it so important that initiatives like the G20s, DSSI, were needed to give breathing space to countries at the time like this, at an exceptional time like this, as much fiscal space as possible has to be left for governments to be able to address the emergency that they are confronted with.
And once the pandemic is behind us I think we're going to have to see which countries continue to have very pressing debt problems. Others may not because they've recovered quickly or revenues have bounced back quickly. So I think there's going to be a period over the next, you know, year or so, where assessments are going to have to be made on how strong sovereign balance sheets are on a country by country basis.
Again, you know, an important point I need to stress here is that, you know, assessments of debt sustainability, debt solvency, are a country specific issue. So it's important to not generalize across the region, and this work will need to be done on a country by country basis in the coming months.
On the question of debt relief from private creditors to the region and the impact that rating agencies may have on countries' ratings and market access. I think it's important to note that, you know, funding from the Bank initially went out and thought, you know, and advocated for debt relief from the official sector. Exactly to note impaired countries' potential market access. So the official sector debt relief, the DSSI in particular, which has now come to be called the DSSI of the G20, is a decision that policymakers can make and shouldn't have spillovers to countries market rating in our view.
Basically this is, you know, between creditors and of course borrowing countries. It's an NPD neutral debt holiday for this year. So, we think it's important, as I noted earlier, to give countries the much needed fiscal space.
In addition, of course, similar arrangement in an NPD neutral way, you know, if it could be provided by the private sector, we noted that it would be very helpful. We of course are very cognizant of countries needing to retain market access so G20 has certainly not make it a condition that countries get private relief to provide the debt relief that they are providing. So this is all very much cognizant that countries need to retain market access.
Again, you know, this has been an exceptionally difficult year, African countries are not unique in the sovereign debt pressures that they're facing. What makes them unique is not having ability to respond as significantly as many emerging market countries and advanced countries have. So, exception support to them we have always felt would be very helpful, hence our advocation for the G20 to provide the debt relief of the debt.
MR. VILKAS: We are still staying on the general questions of IMF toolbox to address a crisis. There is a question from Mario Batista from Lusa New Agency, and he is asking does the IMF plan to try again and use the SDRs to upscale their support given to the most vulnerable members? So just for your information SDR stands for special drawing rights.
MR. SELASSIE: Very good question. Of course, you know, this was one of the measures that we put before the membership some months ago as an option that could be used to support countries, particularly low-income countries who at times like this can do with liquidity, as I noted earlier. The membership didn't coalesce around, you know, a view to support this at that time.
And as the Managing Director noted about the time, it often takes quite a bit of time to put this into effect. So the focus in the near term we felt has to be to work with the instruments that we have while the membership, you know, continues to consider what to do in terms of whether to issue new SDRs or a smaller reallocation for existing SDRs. There are some discussions going on that.
So, you know, in terms what IMF has been doing over the last several months of course is to use the tool kits, which is, you know, ample to provide as much financing as we can to the membership, and have done so really to a certain degree that we've never done in the past.
MR. VILKAS: Thank you. We'll go more to the country issues. And there is a question from Matthew Lee from Inner City Press. And he's asking about couple of countries, but this is the general trend that he is looking at. So IMF projections have the largest drop for the Republic of Congo - Brazzaville. Can you describe some of the reason of this largest drops? And he also wants to know the same reasons for Cameroon and Burundi, Republic of Congo, Angola, Botswana. Are there any patterns that these have the same drops?
MR. SELASSIE: Thank you. So I think you mentioned some of the oil exporting countries, Angola, Cameroon, Republic of Congo. For these countries of course, they have been hit by a double whammy. First and foremost of course is the, you know, terrible impact that the covid pandemic is having in the countries and the economies of these countries. And coupled to this is like the drop in oil prices, which is historic proportions. And being very heavily oil reliant, particularly in the case of Republic of Congo and Angola, the cumulative effect of the two really are what are putting their economies under severe strain.
In the case of the Republic of Congo, is also an outstanding issue of debt being unsustainable, so government's ability to respond to the crisis by easing fiscal policy is also something that is severely constrained. So, you know, these circumstances account for the very large drop in GDP that we are expecting for this year and the down order vision that the questioner raised.
There are other countries also, countries like Botswana whereas the pandemic in particularly neighboring South Africa has been spreading quite a bit, but also the period of extension of the lockdowns are longer than what we were expecting in April. We've had to revise our GDP growth down more markedly than we've done for other countries. So those are the main factors that explain these outcomes.
MR. VILKAS: Thank you. There is also a question, a follow up question from Simon Ateba from Today's South Africa. He is looking how this coronavirus pandemic effect countries like Nigeria, Ghana, Kenya, Cameroon. What are the hardest hit regions there?
MR. SELASSIE: On Nigeria, again, Nigeria is of course the oil exporting country, so the impact of the pandemic is again being compounded by the, you know, sharp decline in oil prices. We are projecting GDP growth to contract by around 5 percent, 5.4 percent if I remember correctly, in Nigeria this year. So very significant hit to incomes.
We feel in the case of Nigeria, you know, it will be very, very important to have a very nimble policy response to ensure that, you know, the hit to their economy is not compounded by policy challenges. This is not the time of course to be aggressively introducing new tax measures, but of course there's the long-standing challenge in Nigeria fiscal side of needing to have sufficient resources generated by the government from non-oil sources to provide investment in health and education and infrastructure. So there is that long-term agenda that needs to be addressed. Right now fiscal policy can be supportive and needs to be supportive.
In addition, of course it will be really important that on the monetary exchange range front also. There is a response that will facilitate the much required, much needed adjustment of the economy to these real shocks.
So, you know, our projection of 5.4 percent is contingent on an nimble policy response and avoiding some of the challenges that we saw when oil prices declined in 2016, causing GDP to be depressed for an extensive period of time.
Subject to flexible and nimble policy response we feel there will be some recovery in Nigeria, but this year will be clearly a difficult one for the country.
Cameroon I spoke about earlier. Kenya, again, has been hit very hard by the pandemic, reflecting of course the decline in tourism also. Kenya relies significantly on tourism, and with travel and tourism disrupted, Kenyan economy will also be hit significantly. So that's an added dimension in terms of the outlook in Kenya.
MR. VILKAS: Thank you. I think we're going to take the last question. And the question is on South Africa from Prinesha Naidoo from Bloomberg News in South Africa. So the question is basically about what are the latest developments on IMF's South Africa talks? Why it's taking so long, what are the sticking points in the talks, and how long have talks been going on? So basically the latest update on the talks with South Africa.
MR. SELASSIE: So, you know, as we had indicated a few weeks ago, South Africa has requested support under the Rapid Financing Instrument from the IMF. As we noted at the time, I mean the key benefit of the financing that we are able to provide under the Rapid Financing Instrument for South Africa is the fact that they would be able to access, you know, this financing at very, very low interest rates, almost negligible interest rates relative to the higher cost of borrowing that South Africa faces.
I want to stress however..., I mean South Africa is in the very well-placed position of having very deep and liquid financial markets so they are able to have access to reasonable financing at the moment.
So the discussions are taking place at a measured pace so, you know, again the key is not so much urgency in us providing financing, but rather because we are able to provide much cheaper financing than would otherwise be the case. So discussions are taking a bit of time, and we hope we'll have a final outcome in the coming weeks and we'll hear back from the South African authorities.
MR. VILKAS: Thank you very much. Just to remind the journalists and reporters who are watching us online. All the material on the updated Regional Economic Outlook is available on our website, IMF.org. You could also find the latest figures of the major Emergency Assistance, also the policy trackers that the countries taking the policy measures to respond to covid-19 pandemic. And all other materials that you would find interesting.
So thank you very much for joining us virtually, for asking us and providing us questions. Thank you, Abebe, for presenting it. And stay safe.