So, the International Monetary Fund is upbeat on the growth outlook for Sub-Saharan Africa. But its biannual outlook for the region flags some big bumps on the way – not least that it is increasingly vulnerable to external shocks. Here are five key points from the paper.
1 – “Africa rising” is on track
The region will account for 2.63 per cent of the global economy in 2014 (measured by purchasing power parity). While that might not sound like much, it will be the largest share it has taken for more than three decades. However, the region’s population accounts for 13 per cent of the global total, underscoring just how far there is to go.
2 – The bottle is half full
The pace of growth is slightly slower than before the global financial crisis. But it is picking up a little, with the IMF forecasting GDP growth of 6 per cent in 2014, up from 5 per cent in 2013. Abebe Aemro Selassie, deputy director of the Africa department at the IMF, says the bottle is a “bit more on the full side”. The main drivers of growth will be strong domestic demand, particularly investment in export-related infrastructure.
3 – Inflation is well under control
The IMF forecast sub-Saharan Africa’s inflation at 6.3 per cent in 2014, the lowest annual average for the region in at least 30 years. The fight against inflation is one of the region’s major economic victories, which for decades had been saddled with rates of between 10-30 per cent. “Inflation in the region is expected to remain moderate in 2013-14, reflecting continuing disinflation in low-income countries and benign prospects for food prices,” the IMF said, adding that “the maintenance of tight monetary policies in some previously high-inflation economies” was critical.
4 – But rising fiscal and current account deficits are a concern
The IMF has largely ignored rising fiscal and current accounts deficits in sub-Saharan Africa for most of the past decade, in part because the increases were from a very low base. But now the institution is sounding less sanguine. The Fund forecasts an average fiscal deficit for the region of 4.0 per cent, compared with a surplus of 0.5 per cent between 2004-08. With the financial crisis in the rear mirror, it is pushing African countries to start slowing spending. The deterioration of fiscal balances is mainly due to weakening revenues, it said. “This is especially true among commodities exporters who are facing weaker commodity prices or lower production – or both,” the IMF added. Current account deficits are also becoming a problem, even if the region is expected to maintain the post-crisis trend toward increasing its reserves coverage. Yet, sub-Saharan African will register an average current account deficit of 4 per cent in 2014, from a surplus of 0.5 per cent in 2004-08. The forecast for 2014 is the largest current account deficit since 1998 and the fourth largest in 30 years.
5 – The statistical vacuum is a big problem
The IMF has warned African countries that they need to improve the quality of their statistics as their economies integrate in the global financial market. “In the wake of the impressive growth of the region in the last decade, interest in the economic structure of sub-Saharan African countries has blossomed in recent years. This has stimulated increased demand for sub-Saharan African statistics from many sources. Unfortunately, the availability and quality of economic data in sub-Saharan Africa often do not measure up,” the Washington-based body said. “Improving capacity in statistics compilation is a long-term process and it will take time to see durable improvements in the quality and consistency of statistics from the region. However, more national authorities now recognise the importance of reliable macroeconomic data,” the IMF added.