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Maintaining Growth in an Uncertain World Regional Economic Outlook for Sub-Saharan Africa

Maintaining Growth in an Uncertain World Regional Economic Outlook for Sub-Saharan Africa. African Department International Monetary Fund November 13, 2012. Outline. Recent Developments and Near-term Outlook Risks to the Outlook Policy Choices.

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Maintaining Growth in an Uncertain World Regional Economic Outlook for Sub-Saharan Africa

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  1. Maintaining Growth in anUncertain WorldRegional Economic Outlook for Sub-Saharan Africa African Department International Monetary Fund November 13, 2012

  2. Outline • Recent Developments and Near-term Outlook • Risks to the Outlook • Policy Choices • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 2

  3. The Global Context: Slowing growth, most marked in the advanced economies • Selected Regions: Real GDP growth, percent change from a year earlier, 2007-2012Q2 • Selected Regions: Real GDP growth including projections, 2007-2013 • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 3

  4. SSA output growth quite strong, but sizeable variation across country groupings Domestic demand, investment, have provided support Recovery from drought and new resource projects too Sub-Saharan Africa: Real GDP Growth, 2007-2013 • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 4

  5. Inflation: slowing from 2011 levels, although with food price shocks a risk factor. Sub-Saharan Africa: Food and Nonfood inflation, 2008-2012 May • Sub-Saharan Africa: End-of-period CPI Inflation, 2008-2013 • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 5

  6. Fiscal deficits remain elevated; debt ratios manageable but rising in several countries. • Sub-Saharan Africa: Overall Fiscal Balance, 2004-2013 • Sub-Saharan Africa: Government Debt Ratios, 2000-2013 • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 6

  7. Sluggish external demand contributes to widening current account deficits • Selected Country Groups: Exports (Three-month moving average, value index), 2008-2012 May • Selected Country Groups: External Current Account Balance, 2004-2012 • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 7

  8. ….. but so do rising domestic investment levels in many countries • Sub-Saharan Africa: Changes in Current Account and Investment, 2007-2012 • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 8

  9. In sum: the outlook for sub-Saharan Africa remains solid in our baseline projections… • Near-term outlook for growth remains positive • Supply-side factors and stronger policy frameworks are playing significant roles • But risks are elevated • Sub-Saharan Africa: Growth Prospects, 2002-2013 • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 9

  10. Risks to the Outlook • The external environment • The euro-zone crisis • The US fiscal cliff • Other risks (e.g. commodity price shocks) • Domestic risks • Policy slippages • Deteriorating security conditions/instability • Climate shocks • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 10

  11. Risk scenario: Intensification of euro area stress in the near term Assumptions : • Policies deployed in the euro zone fail to calm markets • Global output lower than the baseline by about 2 percentage points in 2013 • Commodity prices decline by between 8 (non-oil) and 17 (oil) percent. Impact: • SSA’s growth reduced by 1 to 1.2 percentage points • Sub-Saharan Africa: Real GDP growth in downside scenario 1, 2004-2013 • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 11

  12. Policy Options in the face of Uncertainty Context: 1. The global outlook is uncertain, with large downside risks 2.Many countries face constraints on “policy space”: • a) limited room to finance any further increase in fiscal deficits AND/OR • b) limited foreign reserves to manage exchange rates and maintain confidence in the domestic currency AND/OR • c) limited room to cut interest rates without stimulating inflation and/or exchange market pressures. • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 12

  13. Policy Principles: “the baseline outlook” 1. Countries experiencing strong growth and favorable export prices should move to strengthen fiscal positions. • Accommodative fiscal policy is warranted in middle-income countries where growth is weak – but the margin for maneuver is narrowing as debt levels rise. • Most low-income countries and fragile states need to strengthen domestic revenue bases, given investment needs and risks to aid flows. • Monetary policies appear to be appropriately calibrated in most countries that have monetary autonomy, but there is little room for easing in cases where inflation is still high. • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 13

  14. Policy Principles: “A significant, but temporary, global downturn” No one-size-fits-all, but • Avoid pro-cyclical fiscal tightening , where feasible: – countries that can finance larger deficits should let automatic stabilizers work. – resource exporters with ample foreign reserves can deploy this buffer to offset oil revenue losses, up to a point. – countries with limited borrowing space and foreign reserves will likely need to seek official external financing. • Countries with flexible exchange rates should let the rate adjust as a shock absorber. 3. Central banks with monetary autonomy and anti-inflation credibility can shift emphasis to supporting activity. • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 14

  15. Thank You • International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012 15

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