Africa’s growth momentum to slow

The International Monetary Fund’s Regional Economic Outlook (REO) for sub-Saharan Africa has revealed that the region will record a growth of 4.5 percent amidst the impact of decline in price of commodities on the global market. Growth in the region has been boisterous, but a significant fall in the price of oil, iron ore among others will impact negatively on the region’s outlook, the Fund said at press conference in Accra last week.

According to Antoinette Sayeh, Director of African Affairs at the IMF, “The effect of this shock will be quite heterogeneous across the region. The region’s eight oil exporters will be hit hard and, with limited buffers, are expected to effect significant fiscal adjustment, with adverse implications for growth”.

She further stated that for much of the rest of the region, near-term prospects remain quite favorable with many countries benefiting from lower oil prices -- although, for a number of them, this positive effect will be partly offset by the decline in prices of other exported commodities.

“Notable exceptions are South Africa where growth is expected to remain lack-lustre, held back by continuing problems in the electricity sector; and Guinea, Liberia, and Sierra Leone, where the Ebola outbreak continues to exact a heavy economic and social toll,” she said.

The outlook for solid growth in the face of global pressures, she said, is subject to a number of risks including the large fiscal deficits in some countries amid tighter global financial conditions.

“External financing conditions have tightened, and could tighten further still in the period ahead -- especially as monetary policy normalisation proceeds in the United States. In that context, the large fiscal and current account deficits that prevail in some countries, especially among frontier market economies, leave them vulnerable to a potential reduction in external financing,” the report said.

The report stated the implementation of tighter-than-planned fiscal policies under these circumstances, with cuts to capital spending, will have a negative impact on near- and medium-term growth.

Ms. Sayeh, speaking at the press conference in Accra, said growth could further disappoint -- notably in Europe and China, which are among sub-Saharan Africa’s main trade partners.

“Meanwhile, further dollar appreciation -- reflecting variations in growth rates and expected monetary policies across major economies -- will make imports more expensive in the region, lower investment and growth, and fuel inflationary pressures. It will also increase the debt service burden and could adversely impact balance sheets of banks and private entities,” she added.

Also the outlook said domestic security risks have recently come to the forefront in a number of countries, especially in the Sahel.

“Should these conflicts escalate, it will not only pose serious fiscal and near-term growth-related risks, but also -- to the extent that they cloud the political and business climate -- deter domestic and foreign investors,” she said. According to the Regional Economic Outlook, elections during 2015 in a number of countries could also complicate implementation of politically difficult policies.

“To that end, addressing the infrastructure gap remains critical to allowing new higher-productivity sectors to develop, generate jobs for the rapidly growing young population, and foster integration into global value chains. In scaling up investment to address infrastructure bottlenecks, though, countries will have to remain mindful of the need to preserve debt sustainability,” the report said.