Governor Tarek Amer, 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 22 April 2018 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 developments and prospects. Growth began to recover in 2017 and is expected to continue to strengthen in 2018. But, growth remains too low on a per-capita basis, and there are significant downside risks to the outlook. These risks include a sharp tightening of global financial conditions, weaker than expected growth in key advanced and emerging economies, escalating trade tensions and ongoing security concerns.

“Against this backdrop, we agreed that reducing macroeconomic vulnerabilities and boosting private investment is necessary to lay the groundwork for transforming the current recovery into a sustainable growth spell and accelerating progress towards the SDGs. In particular, with public debt levels rising rapidly in many countries, containing debt vulnerabilities while creating room for much needed development spending requires continued efforts to boost revenue mobilization.

“In addition, sustainable growth and job creation requires reinvigorating private investment. We concurred that deepening financial systems and boosting FDI would help expand financing to the private sector. Advancing regional integration holds immense potential. Finally, other initiatives, such as public-private partnerships and special economic zones, can play a catalytic role in promoting structural transformation, but care is needed to contain contingent fiscal risks.”

Governor Tarek Amer noted that “we agreed on the need to accelerate structural reforms and access to finance in order to raise overall investment and medium-term growth rates to support job creation. The Fund, through its policy advice, can assist countries to design and implement growth-friendly fiscal adjustment, when needed, that responds to the country-specific sources of debt vulnerabilities while preserving needed investments in infrastructure, human capital, and other priority expenditures.

“In this context, countries need space to provide an appropriate social safety net and address security threats in order to maintain social cohesion. The Fund can support efforts to prioritize structural reforms, drawing on lessons from successful experiences of diversification, improved competitiveness, and fighting corruption, including by limiting illicit flows.

“We call on the Fund to continue to support, through policy advice and capacity building, the regional and international initiatives aimed at reinvigorating private investment, trade, debt management, and to assist countries to take advantage of the opportunities provided by digitalization.”

Ms. Lagarde stated that “the IMF will remain closely engaged with its African members. The Fund will continue to support the authorities’ efforts to address the current macroeconomic and structural challenges and achieve a stronger and durable and inclusive growth.”

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Transcript of African Department Press Briefing

Washington D.C., 21 April 2018

Mr Abebe Aemro Selassie, African Department Director, IMF: I want to briefly set out our assessment of the macroeconomic situation in sub-Saharan African and the policies and reforms that are needed to facilitate stronger and durable economic recovery. So sub-Saharan Africa is seeing a modest pickup in economic growth. In particular, growth this year is projected to pick up modestly from 2.8 percent in 2017 to 3.4 percent this year.

This recovery is fairly broad-based with two thirds of the countries in the region seeing growth accelerating in 2018. But this headline figures also mask diversity and growth outcomes and prospects across countries in the region. Several economies such as Cote d'Ivoire, Ethiopia, Senegal, Ghana, are growing robustly with growth of six percent or more.

At the other end of the spectrum, countries that are home to one third of the region's population have seen their per capita income fall in 2017 and most of these countries are expected to witness a further decline in per capita income this year.

The growth pickup we are seeing has largely been driven by a more supportive external environment including stronger global growth, higher commodity prices and favorable financing conditions. On this later point, the record amount of Euro bond issuances in the first quarter gives an indication of the significant improvement in access to international capital markets that the regions frontier markets in particular are having.

External positions have as a result strengthened somewhat, reflecting both these global developments and also improved policy frameworks. Against this backdrop, however, macroeconomic vulnerabilities have risen as we have flagged in previous reports for some time now public debt ratios are on the rise in the region.

About 40 percent of low income countries are now in debt distress or assessed to be at high risk of debt distress. While the causes of this increase are country specific, in part it represents the much- needed investment in infrastructure and development spending which is delivering of course in growth and social outcomes.

It is also worth noting that about half of the increase, about half of the countries in debt distress or at high risk of debt distress are resource-based economies which have had to contend with the largest real oil price decline since 1970. That’s reduced economic growth and hit government revenues significantly.

Looking ahead, the medium-term growth outlook for the region remains subdued. Average medium-term growth is expected to plateau below four percent falling short of the levels envisaged five years ago and below what is needed to ensure progress consistent with the sustainable development goals.

There are significant risks to this outlook as the favorable external environment could fade over time and borrowing terms for the regions frontier markets in particular could tighten.

Elevated security risks are also imposing an immense economic and human toll particularly in fragile states which already are grappling with high rates of poverty and political instability.

In view of these challenges, how can the current recovery be turned into stronger, durable and more inclusive growth? As elsewhere, there is a need to seize the opportunity afforded by the current favorable external conditions by taking domestic policy steps to reduce macroeconomic vulnerabilities and raise medium term growth potential.

In particular, we see three priority areas in the coming months. First, sustained and inclusive growth requires a stable macroeconomic environment but in a number of cases, macroeconomic imbalances are elevated. In this context, fiscal policy needs to strike a balance between debt sustainability and ensuring adequate space for key infrastructure and priority social spending.

Our macroeconomic policy advice and supportive reforms are of course tailored to each country’s structural characteristics and cyclical positions but in the broadest of terms, this can be summarized as in the oil exporting countries there is a need to continue to forcefully implement their fiscal consolidation plans and advanced economic diversification taking advantage of the respite provided by the recent pickup in commodity prices.

For oil importing companies which in some cases have been sustaining growth on the back of large public investment outlays often resulting in some debt accumulation, there is a need to reduce fiscal imbalances and accelerate reforms and facilitates the private sector taking over as the engine of growth.

Central to the goal of addressing debt vulnerabilities is stronger tax revenue mobilization. Stepping up revenue collections would allow sub-Saharan African countries to make progress towards sustainable development goals while preserving fiscal sustainability.

Most countries in the region are seen as having considerable potential to collect higher revenue despite substantial progress of revenue mobilization over the last couple of decades. Sub-Saharan African continues to have the lowest revenue to GDP ratio.

According to some work we have done, countries in the region could mobilize between there to five percentage points of GDP and additional tax revenues in the next four or five years. Achieving this ambition would require strengthening VAT systems, streamlining exemptions and broadening tax base.

Structural policies to raise private investment and nurture a dynamic private sector are also needed in many cases. While public investment levels relative to GDP have been similar to other regions, private investment has been below every region in the world. Raising private investments would require a concerted policy effort to create a sound business environment including strengthening regulatory and insolvency frameworks and deepening access to credits.

Further, trade integration would also help. The recently signed African Continental Free Trade Area. The CFTA is a potential game changing initiative that could boost inter African trade and income if fully implemented.

Before I end, I would like to underscore that sub-Saharan Africa remains a region of tremendous potential. The current upswing in growth provides a more supportive environment to implement much needed policies and reforms to reduce vulnerabilities and raise growth over the medium term. Let me stop here and mention that our regional semi-annual economic outlook will be published on May 8, with launch events taking place in Libreville and Accra. Thank you very much for your patience.

Read the full transcript on the IMF website.