Minister Kenneth O. Matambo, Chairman of the African Caucus, and Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), co-chaired the African Consultative Group meeting on 23 April 2017 at the IMF Headquarters. They issued the following statement after the conclusion of the Group’s meeting in Washington.[*]

“We had very productive discussions on Africa’s economic prospects, focused on policy challenges and opportunities. Reflecting the difficult external economic environment, particularly related to continuing low commodity prices and security-related challenges, economic growth in Africa slowed in 2016 to its lowest level in two decades. However, there continues to be significant variation in economic performance across countries, with non-resource intensive countries, particularly in sub-Saharan Africa, continuing to grow robustly.

“We agreed that the medium-term outlook remains clouded. The external environment has improved somewhat, but significant downside risks and policy uncertainties remain. A possible faster-than-expected normalization of monetary policy in the US could imply a sharp U.S dollar appreciation and further tightening of external financing conditions, as well as a higher external debt burden. Famine in Somalia, South Sudan, and possibly northeastern Nigeria, drought in eastern Africa, and pest and armyworm infestations in some southern African countries could also create food insecurity in about half of the countries in the region.

“Against this backdrop, we agreed that the policy adjustments needed to address the large macroeconomic imbalances faced by some of the countries hardest-hit by the commodity price fall, and to contain emerging vulnerabilities in other countries, should not be delayed. Most oil exporters, particularly in Sub-Saharan Africa, continue to face the need for a large fiscal adjustment to reflect the permanently lower oil prices, and in countries with scope for exchange rate flexibility, the exchange rate should be allowed to absorb pressures, while eliminating exchange restrictions. Even for those countries that have continued to grow robustly, a gradual, growth-friendly fiscal consolidation may be required to address emerging vulnerabilities. More broadly, efforts to enhance domestic revenue mobilization, public financial management, and financial sector deepening while addressing long-standing weaknesses in the business climate will all support a resumption in stronger and more inclusive growth. Finally, we concurred that there is a need to develop a more integrated and well-targeted social safety net.”

Minister Matambo noted that “addressing the heightened vulnerabilities facing African economies will require an invigoration of policy measures to address macroeconomic imbalances, rebuild fiscal and reserve buffers, and advancing structural reforms to tackle bottlenecks to broad-based growth and enhance economic resilience. Our countries’ efforts to tap into non-concessional financing to augment the fiscal space for development expenditures, shall be accompanied by reforms aimed at improving public investment efficiency and strengthening capacity for debt management, with the view to preserve debt sustainability. The Fund has a critical role to play in supporting African countries’ efforts in addressing the macroeconomic and structural challenges, through enhanced policy advice and technical assistance, but also adequate financial support where required.”

Ms. Lagarde stated that “the IMF will remain closely engaged with its African members. The Fund will continue to support the authorities’ efforts to not only address the current economic challenges but also to emerge from them stronger and on a path to achieve sustained inclusive growth. The Fund’s support in these efforts can take several forms, depending on countries’ needs: policy advice, technical assistance and training, and – where appropriate and needed – financial assistance. For those members facing situations of food insecurity or famine, we remain prepared to assist promptly, consistent with our mandate, including with additional financial assistance as warranted. The IMF will continue to strengthen the analytical underpinning of its policy advice, and seek to adapt to meet the evolving needs of the membership.”

[*] The African Consultative Group comprises the Fund Governors of a subset of 12 African countries belonging to the African Caucus (African finance ministers and central bank governors) and Fund management. It was formed in 2007 to enhance the IMF’s policy dialogue with the African Caucus. The Group meets at the time of the Spring Meetings, while Fund Management meets with the full membership of the African Caucus at the time of the Annual Meetings.

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Transcript of African Department Press Briefing

Washington D.C., 23 April 2017

Mr Abebe Aemro Selassie, Director, African Department, IMF: 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.

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: 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.

Read the full transcript on the IMF website.