THE International Monetary Fund,
IMF, has challenged Sub-Saharan African countries, to reset their economic
policies in order to return to the path of growth. It said in its latest
Regional Economic Outlook for Sub-Saharan Africa has been hit by multiple
shocks, especially falling commodity prices and drought which has hit several
nations on the continent. African-leaders It said that commodity exporting
countries, where fiscal and foreign reserves are being rapidly depleted and
financing is constrained, the response to the shock needs to be prompt and
robust to prevent a disorderly adjustment. “Countries outside monetary unions
should use exchange rate flexibility, as part of a wider macro-economic policy
package, to absorb the shock. As revenue from the extractive sector is likely
durably reduced, many affected countries also critically need to contain fiscal
deficits and build a sustainable tax base from the rest of the economy. “Given
the substantially tighter external financing environment, market access
countries with elevated fiscal and current account deficits will also need to re-calibrate their fiscal policies to rebuild scarce buffers and mitigate
vulnerabilities if external conditions worsen further. “The required measures
may come at the cost of lower growth in the short-term. However, they will
prevent what could otherwise be a significantly more costly disorderly
adjustment,” the organization said. It added that such policies would lay the
ground work needed for the region to reap the substantial economic potential
which still lies ahead. On the causes of the dwindling fortunes of African
economies, the IMF said, “The steep decline in commodity prices and tighter
financing conditions have put many large economies under severe strain, and the
new report calls for a stronger policy response to counter the effect of these
shocks and secure the region’s growth potential.” The report shows growth fell
to 3½ percent in 2015, the lowest level in 15 years. Growth this year is
expected to slow further to 3 percent, well below the 6 percent average over
the last decade, and barely above population growth. Commodity price slump The
IMF said, “The commodity price slump has hit many of the largest sub-Saharan
African economies hard. While oil prices have recovered somewhat compared to
the beginning of the year, they are still more than 60 percent below 2013 peak
levels, a shock of unprecedented magnitude. As a result, oil exporters such as
Nigeria, Angola, and five of the six countries within the Central African
Economic and Monetary Community continue to face particularly difficult
economic conditions. The decline in commodity prices has also hurt non-energy
commodity exporters, such as Ghana, South Africa, and Zambia. “Compounding this
shock, external financing conditions for most of the region’s frontier markets
have tightened substantially compared to the period until mid-2014 when they
enjoyed wide access to global capital markets. In addition, a severe drought in
several southern and eastern African countries, including Ethiopia, Malawi, and
Zimbabwe, is putting millions of people at risk of food insecurity.” However,
the organization said that there is prospect in the future for the region as
many countries continue to register growth in per capita terms. ”In particular,
most oil importers are faring much better with growth of 5 percent or higher in
countries such as Côte d’Ivoire, Kenya, Senegal, and many low-income countries.
These countries continue to benefit from infrastructure investment efforts and
strong private consumption. While the immediate outlook for many sub-Saharan
African countries remains difficult, the region’s medium-term growth prospects
are still favorable. The underlying domestic drivers of growth at play over the
last decade generally continue to be in place. In particular, the region’s much
improved business environment and favorable demographics should help bolster growth
in the medium term,” the IMF said.
Credit:Vanguard
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