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Transcript of IMF African Department Press Briefing, Comments on Nigeria

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Monday, October 16, 2017  09.21 AM / With Abebe Aemro Selassie, Director, African Dept on Oct 13, 2017

Moderator: Lucie Mboto Fouda, Communication Department 

MS. FOUDA:  Good morning, everyone, and welcome to this press conference.  This is going to be directed by Mr. Abebe Aemro Selassie who as some of you may know is the Director of the IMF's African Department.  I'm Lucie Mboto Fouda with the Communications Department.  Abebe will have a few opening remarks and then he will be happy to take your questions.         

 

MR. SELASSIE:  Thank you, Lucie.  A very good morning to you all.  Before taking your questions, I would like to say a little bit about the near term outlook for sub-Saharan Africa, the current macroeconomic situation, and importantly the policies to ensure a strong and durable recovery.

 

So, growth in sub-Saharan Africa has picked up relative to last year, but it remains markedly below the level of recent years.  Growth is expected to reach around 2.6 percent this year, compared with about 1.5 last year.  The recovery is mainly due to one-off factors; some recovery in oil production in Nigeria and the easing of drought conditions in eastern and southern Africa. 

 

As well the somewhat better external environment has contributed to the recovery that we've seen.  One thing that we're concerned about however is that underlying growth momentum remains weak.  Beyond 2017 we see growth expected to be about 3.5 percent through around 2019, and this is below the 5 percent or more mark that the region was expanding by in the first half of this decade.

 

Of course as usual this, aggregate growth number masks considerable differences across the region.  One-third of the countries in the region continue to grow fairly robustly, so the likes of Côte d'Ivoire, Ethiopia, Tanzania, Kenya, and some countries also in the west and eastern Africa, the likes of Senegal also are expanding strongly.  But I have to stress that 12 countries which are home to 400 million people, 40 percent of the region's population, are expected to see per capita income decline for the second year in a row this year.  

 

Unpacking this a little bit, we think recovery has been supported by improvement in the policy position in a number of countries.  Exchange rate policies have become less distortionary, fiscal deficits have stabilized somewhat albeit reflecting spending compression rather than structural fiscal reforms.  At the same time, current account deficits have narrowed in many countries, especially in the oil-exporting countries. 

 

Also, the external financing environment facing the region has been supportive.  Borrowing costs faced by the region's frontier markets have declined sharply mainly on account of global factors.  But this decline in borrowing costs has improved access to financing, allowing several countries to return to the euro bond market in the first half of the year.

 

At this juncture, we see quite a few policy challenges.  Let me highlight the key ones.  I think first public debt has risen in many countries in the region.  The medium level of debt in sub-Saharan Africa has increased from 34 percent in 2013 to 48 percent of GDP in 2016.  Most of the pronounced increase in debt has happened in oil-exporting countries following the deterioration in their economic conditions, of course.  But we've seen debt levels increasing also in countries that have been sustaining high growth.  The main drivers behind this rapid debt accumulation have been the elevated level of fiscal deficits, growing interest bills, and valuation effects associated with exchange rate depreciation. 

 

Most sub-Saharan African countries are planning fiscal adjustment in the coming years so the key policy message in passing will be that countries need to stick to the adjustment plans that they have planned.  Absent this, if they fail to do the adjustment that they have already planned, we will see public debt going up at the same elevated pace that it has been growing in the last couple of years. 

 

Beyond fiscal policy there are a number of things that can be done to strengthen the recovery.  First, in terms of the way fiscal reforms are to be pursued itself adjustment is on the cards in many countries now so we've been asking ourselves and looking into how best can these reforms be designed to minimize the negative effect that they can have on growth.  And what the experience in the region has shown is that adjustment based on revenue mobilization is generally likely to have smaller effects on growth than those adjustments based on cutting spending.

 

Importantly, there is ample potential to raise additional revenue in many countries from 3.5 to 5 percentage points of GDP in many cases, and emphasizing revenue mobilization in coming years I think will have the benefit of containing fiscal deficits while maintaining spending envelopes to help address development spending.

 

We've also been looking at what is needed to help diversify the region's economies given that reliance on commodity prices has again been a source of difficulties in many countries.  In general, the picture of the region's economic diversification record to date, average numbers show that diversification has been limited.  But this is mainly being driven by developments in commodity exporters which have seen their economies to be increasingly more concentrated and relying on natural resources over the last decade or so due to the higher commodity prices and discovery of new natural resources. 

 

On the other hand, economies that are less reliant on natural resources have actually made good strides in helping diversify their economies.  So, I'm here thinking of countries like Rwanda, Uganda, and several others.  The pace at which they've diversified is actually in keeping with other developing countries elsewhere in the world.  And we're going to be working in the coming months to help identify country-specific strategies to help advance diversification in countries, but our finding generally shows the importance of sustained macroeconomic stability, facilitating investment in human capital, and promoting transparent governance and institutions being very important contributors to promoting diversification.

 

Thank you.  I will stop there, Lucie.

 

MS. FOUDA:  Thank you so much, Abebe.  May I suggest as usual that before you ask your question you state your name and your affiliation so that Abebe knows who he's talking to.  Now we can take questions in the room please.  Yes, ma'am?  The microphone is coming to you.

 

QUESTIONER:  I report for the Nigerian Television Authority.  I would like to quickly ask two questions. 

Firstly, part of your observations, do you think it's time for Africa especially the sub-Saharan economies to look into local models of making their economies more viable and attractive considering the fact that most countries have had their models inspired by western and the Asian ones.  But it's peculiar to them, and we have grappling with catching up with what other nations are doing.

 

Secondly, I want to ask about the Nigerian economy.  Agriculture has been remarkable in the past one year, so what other places do you think Nigeria can look into and what other instruments do you think Nigeria can put in place to see that these diversifications really count at the end of the day? 

Description: Image result for nigeria flag

MR. SELASSIE:  Thank you.  So, on local models I think I agree, development strategies have to be country and time-specific.  So, a strategy you have even in Nigeria now versus ten years ago, are going to be different.  So, absolutely I think having developing plans and models or reform strategies that are specific to Nigeria's specific needs at this venture are important so it's difficult to disagree with that point. 

 

On agriculture, given how big the size of the Nigerian economy is and given the potential that it has including an agriculture,  it is a sector that should be doing much better I think.  On the macro side I think what is needed in Nigeria at this moment we think are mobilizing more revenues.  I think that is important to help the government invest more in health and education and building infrastructure that is going to be important for other sectors like agriculture, manufacturing to take off.  Without energy, it's difficult to have higher productivity activities to take place including in agriculture.  Some processing is going to be important. So, addressing the energy issue, all of this I think requires a lot more public investment and so the revenue mobilization angle being important.

 

Second, I think is also other policy uncertainties that there are.  But on the fiscal side there is also a need to further improve the allocation of foreign exchange systems, there has been a strong improvement in that.  But I think just creating liquid and deep foreign exchange markets, financing the reforms that have been taking place encouragingly the last couple of months is going to be important.

 

So, I think once the macro environment is stable then policies can shift to how to better promote the specific sectors.

 

QUESTIONER:  Thank you so much.  Sherman Brice with South African Broadcasting.  The IMF Managing Director, Christine Lagarde, and yourself talk about how countries in sub-Saharan Africa that are not mineral or commodity dependent are growing much faster than the South Africas or the Nigerias of that region.  Why is that?  Why are the big economies that are commodity dependent reforming so slowly in terms of the structures of their economy?

 

And this overall picture of 2.4 percent for sub-Saharan Africa is well below global growth.  How concerning is that in terms of the levels of inequality?  In South Africa stats, South Africa says there are 30 million people out of 55 million people in the country that live around the poverty line in South Africa.  How dangerous is it to grow at such a slow pace given the levels of inequality in these countries?  Thank you.

 

MR. SELASSIE:  Thanks.  So, on the why it is that the commodity-exporting countries are growing slower.  The decline in commodity prices has been a very severe shock to these economies so a slowdown in growth is to be expected.  Beyond also the commodity price shock I think there's been a confluence of other factors that have compounded the shock.  So, in South Africa, for example, last year was of course very difficult for the whole eastern seaboard of the region because of the drought.  So, there's been a confluence of these shocks which has exacerbated conditions. 

 

I think thankfully in South Africa's case there's been the fiscal space to try and accommodate the impact of the shock so that has attenuated an even deeper recession, but still growth is extremely anemic.  I don’t want to minimize kind of the exogenous nature of some of the reason why the commodity exporters are growing slowly. 

 

So, the key really comes back to how can you get growth to recover both that and in the other commodity exporting countries?  One, of course, is you can only allow deficits to expand for a limited period without it creating a lot of debt, et cetera, so you need to create medium term fiscal frameworks that will bring the deficit back to more moderate levels.  So, creating certainty by identifying policies and how you're going to go back to a healthier public sector balance sheet is going to be important. 

 

Relatedly, not in South Africa so much but in the other countries we've seen the exchange rate policy response not having been as rapid in terms of allowing exchange rates to adjust fully.  That is slowly being addressed, and differs at the pace in which it's being addressed.  I think that's also an important angle.  And then there are countries where oil exporters in the region who have a fixed exchange rate and in those countries an even longer fiscal adjustment period is going to be needed because they don’t have the exchange rate adjustment mechanism. 

 

So, the kind of policies that are required to allow growth to grow back differ from country to country and I've outlined a little bit the macro challenges.  This has to be supplemented by policies to remove the uncertainty,facilitate structural reforms, promote competitiveness, so the whole gamut of economic policy reforms need to be addressed to help these countries recover and have a more diversified base, which has allowed them to attenuate, the effects of the shock.

 

QUESTIONER:  I want to understand if the outlook for Mozambique for 2018 has been done with or without the IMF program for us.  Also, I want to ask you if my government will take a big step for starting the negotiation of a new program?  And if you can tell me a little bit which message the official delegation of Mozambique has brought for the meetings that I imagine that you had?  Thank you.

 

MR. SELASSIE:  Okay.  So, starting with the dialogue we've had with the delegation from Mozambique, you know, it was useful to have a meeting with the delegation where they provided us with an update of economic conditions, the macroeconomic situation, which is a bit better than it was earlier this year and last year, but I think they also highlighted and stressed that a lot more remains to be done by way of fiscal reforms in particular.

 

In terms of our projections we are not at the moment assuming that there will not be a program next year, there is no program discussion as you know, the engagement that we had has been interrupted, and this as is well known also so until the gaps that have been identified by the audit that's been done can be filled, so we are waiting for those to be completed.

 

QUESTIONER:  My name is George wiafe from Joy FM in Accra, Ghana, and Multi TV.  I looked at your projection for Ghana, growth is going to pick up, debt to GDP ratio is going down as well.  How has the program contributed to this perceived success story, and what do you think that managers of the economy need to do to sustain this trend so we don't get off track?  And also, to find out from you when exactly is the program with Ghana ending?  There are issues about test date and trigger date, is it going to end in April 2019?  Thank you.

 

MR. SELASSIE:  So, on Ghana, there's been encouraging progress, you know, first and foremost the program is the government's own economic program and, you know, the aim of the program is to try and move fiscal deficit to a level which doesn’t continue to contribute to an increase in debt, so there's been good progress towards that objective.  There still remains more fiscal reforms that need to be done this year to be able to reach the level I think that's going to be necessary, so we look forward to working in the coming months with the government.

 

As for when the program ends, I believe, actually the program expires in April, and this is consistent with our arrangements with every country that you have, a test date before the actual expiry date of program.

 

QUESTIONER:  Thank you.  A question on Zambia from Bloomberg News.  I think one of the IMF officials there said that there shouldn’t be an expectation for any substantive talks on the $1.3 billion program during the course of this week, with the negotiations that you are holding.  Is there any breakthrough there?  Or, what exactly is holding up those substantive talks.

 

MR. SELASSIE:  You know, I haven't yet met the government delegation on Zambia, but as we had earlier indicated, it hasn’t been possible for us to move forward with program discussions that's why we  went to the Board with Article IV earlier this last month.  The government has expressed an interest in program discussions, and we will know more when I engage with them, and the team engages with further discussions in the coming days. 

 

QUESTIONER:  Good morning.  I'm Nancy Naje (phonetic), (inaudible) in Nigeria.  I just have a couple of questions and let me start with: if you are encouraged with the economic reforms especially in Nigeria, by the Buhari administration. You also talked about mobilizing revenue, especially for other energy exporter, such as Nigeria.  Mobilizing revenue in what sense?  Of course, the Ministry of Finance now, and the tax authority in Nigeria, they do have a program to mobilize money, to mobilize more money from taxes.

But listening to IMF Chief yesterday, she did say that tax on the rich will not improve inequality, that perhaps countries like Nigeria should invest in lessening the gender gap.  So, how can Nigeria think of lessening the gender gap now, while having the challenge of improving revenue?

The other thing in your statement, you talked about the FX market, what do you hope to see, of course right now, quite a whole lot has been done by Central Bank of Nigeria, what else do you want to see?  The corruption fight, are you encouraged with what's happening in Nigeria concerning the corruption fight, then the MSMEs (phonetic), The World Bank President talked about startups yesterday what kind of startup models -- how do you think that startup models should be encouraged in Nigeria, because what we have right now is that a whole lot of entrepreneur have been told to get collaterals that they cannot give? 

Description: Image result for nigeria flag

MR. SELASSIE:  Thank you.  So, you know, in terms of what can the government do, I think the Ministry of Finance has identified quite a few steps that can be taken by way of tax administration, improving tax administration, making sure that people are paying the taxes that they meant to be paying and whether or not identifying and taking action.  But our guess is that there also is going to be need for tax policy changes to be able for Nigeria, which has a very, very low level of revenue mobilization to improve that.

 

Again, I come back to the point that these resources are needed to help strengthen the infrastructure environment in Nigeria to help invest in the many, many schools, that have to be built.  Improving conditions in schools, you know, improving health delivery in Nigeria.  I think this is nothing new that I'm saying here.

 

Now, in terms of designing tax policy changes there is a way to do it, and indeed we advise countries and provide technical assistance on how to do this in a way that is progressive.  So, you know, the taxes are collected on people that are rich, the richer segments of society rather than the poor.  So, there is a lot of technical work that can be done to do that.

 

You know, the decision ultimately on these tax policy changes will be the governments and it's of course parliament that will ultimately take the decision, but we've been providing a lot of support, technical assistance support and policy advice in this area.  And again, I cannot stress, the key, again, remains that, you know, Nigeria, we feel needs to do a lot more investments both in infrastructure, and in human capital investment.

 

On the foreign exchange markets, reforms, et cetera, as I mentioned, you know, just if you look simply at the gap between the foreign exchange market rate, you know, the bank rate and the parallel market rate was very, very wide earlier this year, a lot of businesses complaining about shortage of you know, not having enough access to foreign exchange, I think that has attenuated over the last four, five months, so that's what we are encouraged by.

 

Ultimately, I think the objective as we used to have before, has to be in creating a liquid and deep single foreign exchange market.  So, you know, reforms toward that, going forward would be helpful.  I'm afraid I don't know much about what to do for startups, so I will pass that questions.

 

  You're right. You know, absolutely, I mean, of course improving governance, tackling corruption, you know, it is important in all countries and making strides on that will be very important including to make sure and satisfy people that the taxes that they are paying are being used effectively.

 

QUESTIONER:  Hello.  I'm from Gabon, I'll be asking my question in French.  I would imagine you’ve had meetings with the Gabonese delegation.  I'd like to know first of all, what do you think about the economic situation in Gabon currently?  And what would your recommendations be for my government to strengthen its economic situation, this year is supposed to be a year of action, strong policies which will trickle down to whole population which is no longer satisfied with just nice political rhetoric; they want an effective, a political policy at the national level, they want reduction of the national debt, for example?

 

MR. SELASSIE:  So, the program with Gabon as you know, was approved by the Board in June, we are encouraged by what we've seen so far in terms of the numbers but this is a three0year program, and it's going to take quite a bit to, you know, say for sure that the programs achieving the objectives that it has.

 

Gabon is very much one of the countries that I was touching on earlier that has been hit, you know, by the decline in commodity prices, which has of course reduced government's revenues, it has caused a shortfall in export earnings also.  What is important is trying to address those, you know, those exact things.  we are encouraged that there are a lot of reforms that have been put in place, and that, you know, beyond just the oil sector, that there are a number of investments that have taken place over the last several years, should begin to bear fruit.

 

So the key will be to regularize public finances, and we are working closely with the government on that.  So, you know, three months into the program we are very encouraged by the signs that we are seeing.

 

QUESTIONER:  I'm from Chad.  You just mentioned Gabon, so it might be a good idea to take stock of this situation of (inaudible) countries, which have -- four of the countries are now part of this program.  What's the current situation?  What's the current debt situation.  I know that those dialogues are not going very, very well, with countries in terms of the debt load.  Could you, perhaps, leverage on that?

 

MR. SELASSIE:  So, both the programs of Gabon, Chad, but also with Cameroon and Central African Republic.  Of course, you know, are in the context of the discussions that we had last year by the heads of States of CEMAC (phonetic) last December, where they agreed that there is a need to move forward forcefully to address the impact that the decline in commodity prices has had on their economies.  You know, the situation of the economy conditions, level of debt, you know, fiscal deficit challenges vary from country to country.

 

The one that all of the countries have in common though is, you know, an impact that has come about by the decline in commodity prices, and you know, five out of the six countries are significant oil exporters, so that the decline in oil prices has had severe impact on the economies.  We've agreed with programs with four other countries where we have a lot more visibility on the numbers and are working with the programs that have been put in place. 

 

What I can tell you there is that, you know, where there is debt issues we are trying to find ways in which that can be addressed, but always with a view, importantly to make sure that we strike a healthy balance between financing and investment.  So, the program with Chad has been recalibrated to provide more resources to avoid too much of a stress on cutting spending.  We are trying to also, you know, to strike the same balance in the programs in the other countries.

 

QUESTIONER:  Thank you.  My name is Simon Ateba, from Simon Ateba News, Africa.  Mr. Selassie, you tried to explain this to ordinary African watching you today.  We always have these beautiful projections about some countries in Africa, but in reality we see inequality keep expanding, poverty keeps increasing, and we see dilapidated infrastructure.  What do African countries need to do for your projection on the IMF/World Bank Report to actually square over the reality on ground?  The second, last question, on Cameroon, you made some projection on Cameroon, did you take into consideration the instability in Southern Cameroon?  Thank you.

 

MR. SELASSIE:  Thank you.  Maybe I'm betraying my age, but you know, I've been working in the region since at least 1992, and the Africa of today, in the vast majority of cases, is very different from the Africa that we had in '92, or an earlier period.  So, there has been a lot of progress, and I don't mean, the skin-deep progress of buildings in our cities, but, you know, if you look at human development outcome indicators like infant mortality levels, maternal mortality levels, education outcomes, the number of kids that are going through school.

 

All of these indicators have improved.  So, of course it varies.  You know, we cannot talk about one Africa, even within Sub-Saharan Africa there are 45 countries at various stages of development.  So, outcomes vary, but there's been very strong progress over the last 20, 25 years.  And this is all related to the growth numbers that we are talking about because, you know, it's these growth numbers that we are talking about, because you know, it's these growth numbers that provide the resources for governments to invest.

 

So, again, both on the social development outcome side, but also on the growth side.  I think there has been progress.  This is not by any means to minimize the extent to which there is a lot of poverty that remains there, God knows, there's too much.

 

But I think the key really is to pursue the policies that have worked, this is why, kind of when we break down the numbers we, you know, in the presentation I made earlier also we look at both the success cases but also places where there is progress not being made, like the number of people who are not going to be enjoying per capita income growth in the region.  So that's on your first point.

 

On Cameroon, but this is true of all the other countries in the regions, to the extent that we are able to, of course we try and take into account the adverse impact that shocks like the one in Cameroon you are talking about not having, so sometimes it's very difficult to ascertain what the exact impact is on growth, but we do pay heed to -- we do try and pay heed as much as we can.

 

QUESTIONER:  My name is Adam Ouloguem. I'm from Mali, and I'm the Washington Bureau Chief of the African Sun Times.  Can you just tell us about the countries of the Sahel, if you look at what is going on in terms of the stability, the fight against terrorism.  Can all of this have an impact on the economic development of that area of the world?  Thank you.

 

MR. SELASSIE:  So, you know, countries in the Sahel, of course have the usual development challenges that many of our countries in the region face.  In addition, I think some complex issues like climate change also, you know, gender inequality, in a couple of cases being particularly high, and the last couple of years we've had the insurgencies that have caused a lot of deaths and suffering.

You know, in terms of how we engage with the government, we'll try and provide whatever is feasible and financing is available to try and accommodate the security related costs in our programs to help address the security threats that countries are facing.  You know, that's as much as we are able to engage in these issues.

But of course, I think there are ultimate solution for our countries, has continued to do more investment in health education, strengthening job prospect possibilities for the young.  I think those things are the way to respond to this in the long run.

 

MS. MBOTO FOUDA:  I think with that, we will conclude.  Unfortunately, time is running up.  Thank you so much for coming.  Thank you Abebe for your time.

MR. SELASSIE:  Sure.

 

 

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