African Consultative Group Meeting: Statement by the Chairman of the African Caucus and the Managing Director of the IMF

African Consultative Group Meeting: Statement by the Chairman of the African Caucus and the Managing Director of the IMF
Photo credit: IMF | Stephen Jaffe

15 Apr 2019

Minister Kenneth Ofori-Atta, 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 12 April 2019 at the IMF Headquarters. They issued the following statement after the conclusion of the Group’s meeting in Washington, DC:

“We had very productive discussions on Africa’s economic developments and prospects. The economic recovery in Africa is expected to continue. However, under current policies and amid increased global uncertainty, medium-term growth for the region is expected to continue to fall well short of what is needed to absorb new entrants to the labor force. The key challenge that Africa faces is to invest in human and physical capital to create jobs while at the same time reducing debt vulnerabilities.

“Against this backdrop, we agree that countries need to generate fiscal space, enhance resilience including to climate change, and create sustained high and inclusive growth, including by removing obstacles to greater gender equity. This will require, in particular: (i) pursuing growth-friendly fiscal consolidations, where needed, that strike the right balance between development spending, reducing debt vulnerabilities, and meeting essential social needs; (ii) strengthening the effectiveness of monetary policy to enhance the monetary transmission mechanism; (iii) enhancing the flexibility of markets to facilitate adjustment to shocks and preserve competitiveness; (iv) removing trade barriers to boost medium-term growth, including in the context of the African Continental Free Trade Agreement; and (v) addressing illicit financing flows and base erosion to enhance governance and strengthen revenue collection.”

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, durable and inclusive growth to absorb new entrants in the labor force.”

Minister Kenneth Ofori-Atta echoed Ms. Lagarde on the economic prospects of the continent, and the willingness of the sub-region to work closely with the IMF to tackle emerging concerns. He emphasized the need for members to sustain commitment to structural reforms and encouraged the Fund to show patience in its program engagement when there is demonstrated ownership by country authorities for successful outcomes.

Transcript of the African Department Press Briefing

Washington DC, 12 April 2019

Mr. Abebe Aemro Selassie, Director: African Department: Thank you, Lucie. A very good morning to you all, thank you for joining us this morning. We [have just launched] our Regional Economic Outlook.

The Sub-Saharan Africa economy continues to recover in terms of economic growth. This year we are expecting growth to accelerate to 3.5 percent from 3 percent last year. But these regional average numbers mask quite a lot of difference in terms of outcomes across the region.

Specifically, some 21 countries are expected to grow at 5 percent or more this year, and so, you know, with per capita income increases that are markedly larger than many countries in the rest of the world. And these economies that are growing fast tend to be the more diversified economies.

Still, there are in other set of countries, around 24, mainly resource-dependent economies that are facing sluggish growth in the near term and are seeing slower improvements in standards of livings. This group includes some of the larger economies in the region, the likes of Angola, Nigeria, and South Africa, which account for more than 50 percent of the region's output.

External and domestic developments are having a betting on the economic outlook. On the external front perhaps the most important factors have been the volatility and global financial conditions, as well as the volatility in commodity prices which are posing a challenge for policymakers.

Domestically, one pressure point remains rising public debt vulnerabilities, these are elevated in some countries, and posing a challenge. The reason for the increase in debt levels tends to be very country-specific, for some it is due to addressing the large infrastructure needs. In others it's been the effect of the commodity price shock that hit countries between 2014 and 2016. And yet in others it's been procyclical policies which have led to the marked increase in debt levels.

Looking ahead, we see basically two broad implications for policies. First in the fast-growing economies, the likes of Benin, Ethiopia, Ghana, Senegal, there is a need to hand over the reins of growth from the public to the private sector.

In many of these countries public investments has helped spur higher growth, while also, of course, translating into an increase in public debt levels, so there is a need to strike a better balance between public debt increase on one hand, and the continued investments that are needed in public investment.

In the slower-growing economies, the likes of, as I just mentioned, Angola, Nigeria, South Africa, there is a need to pursue reforms to facilitate economic diversification, and address remaining economic imbalances, many of these cases, private investments remain weak, and a strong focus is needed to address the constraints that are holding such investments back.

One development that we are very hopeful will facilitate growth, is increased trade integration in the region. We are very encouraged by the progress that has been made towards the African Continental Free Trade Area. Once completed the trade agreement will establish a market of 1.2 billion people, with a combined GDP of $2.5 trillion.

The benefits could be substantial, particularly if countries tackle the non-tariff bottlenecks to trade, including by investing in infrastructure, lowering logistical costs and improving trade facilitation.

What is interesting, we think, is that intraregional exports in Africa are more diversified and have a higher technology content, than Africa's exports to much the rest of the world.

And just to give you a couple of numbers on this, 40 percent of intraregional trade is accounted for by manufactured goods, whereas the region exports to the world 75 percent of such exports tend to be minerals, the likes of crude oil, and other commodities.

Still, one thing to note of course, is that, to ensure the benefits of intraregional integration are shared by all, policymakers should be mindful of the adjustment costs that integration could entail and move swiftly to address those.

In addition to these more medium-term challenges that I've been noting we see, you know, countries of course have been hit by significant shocks. Two such examples I want to highlight. I think the first is the security challenge.

Overall the conflict levels in the region tend to be much lower than in the '90s, and even early 2000s. But countries in the Sahel and Lake Chad Basin are facing considerable security threats, and this region (inaudible) economic outlook, we have done some work looking at the recent trends, and the economic impact that conflicts are having.

This is an issue of great concern, and we are discussing with country authorities how best we can minimize their diversion of resources away from much needed development spending.

Another example of the kind of shocks that policymakers have to contend with of course are weather-related shocks. As you know, Cyclone Idai has a devastating impact in Southeast Africa, leading to the significant loss of life and damage.

We are doing everything we can to support the countries that have been affected. Just to give an example, we have moved very rapidly to support Mozambique through a rapid credit facility. We expect the Executive Board to consider this request as soon as next week, within a month of the hurricane hitting – the cyclone hitting Mozambique.

In Zimbabwe, yesterday we announced a staff-monitored program which will support the government's economic policies, and we are having extensive dialogue with authorities.

And then, Malawi, we are in discussions with authorities to provide additional support through the existing ECF arrangement we have with them.

Before I end, I would like to stress that Sub-Saharan Africa remains a region of tremendous economic potential, and while the global environment is increasingly uncertain, there is much that the countries are doing and can do to sustain very high rates of growth, which we are certain will translate into continued improvements and development outcomes.

Questioner: The Trump administration is one in that the Chinese investment in Africa while is good for infrastructure is also can turn out to become death trap and a (inaudible) takeover. We have cases in Sri Lanka especially because the loans from China end up in the hands of very corrupt government, unaccountable government. How big a threat is the Chinese investment and expansion in Africa.

And, finally, yesterday the new (inaudible) president the alarming statistic about Africa. He said by 2030 nine out of ten extremely poor people in the world will be Africans, which is bit surprising seeing all the poor in Asia and in the U.S. and in Europe. Is the IMF seeing the same thing? And, finally, in terms of statistics, we see the IMF has 3.5% projection this year and the World Bank has a different statistics. How does it work? Why do you have different statistics? How do you get to it?

Mr. Selassie: Okay. A lot of questions there. First, on the debt issue, as I flagged earlier, you know, in some countries I think it’s important to know that, you know, with many policy challenges and particularly for the region as diverse as (inaudible) Africa, it is very important to consider them in a country specific context. So, the reason why debt has gone up defers from country to country and the sources of financing also tend to be country specific.

Our advice, of course, always is to make sure that countries are (inaudible) a healthy balance between on the one hand continue to address their development objectives and second, avoiding the sustainability concerns. In some cases, of course, these kind of debt problems can arise from borrowing from bilateral creditors, but in other cases it comes from borrowing from commercial banks. Somebody asked me a question about (inaudible) not so long ago. Right. The issue with debt sustainability had arisen on the context of borrowing from commercial banks that are hidden in that case.

So, the issue of debt transparency is not unique to China, but also to all borrowing that our countries are undertaking and what’s important, again, is making sure that total borrowing levels remain consistent with debt servicing capacity. Failing to do that, of course, is very problematic.

On the outlook for the region in terms of addressing poverty rates, you know, of course this is exactly why we have this dialogue at these meetings. With policymakers, you know, the brunt of our work is to make sure that the region continues to grow as robustly as possible to create the millions of jobs that our economies need to avoid, you know, wore outcomes particularly given the demographic challenges that the region faces. So, this is exactly what policymakers, institutions like the IMF, World Bank are all engaged in to make sure that we can facilitate help economies grow as robustly as possible to reduce existing poverty and avoid poverty levels deteriorating any further.

Read the full transcript on the IMF website.

Source International Monetary Fund
Website Visit website
Date 15 Apr 2019
  15 minute read
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