Transcript

Transcript of the African Department Press Briefing

October 10, 2014

SPEAKERS:
Antoinette Sayeh, Director, African Department
Andrew Kanyegirire, Senior Communications Officer

Webcast of the press briefing

MR. KANYEGIRIRE: Great, okay. Good morning once again. My name is Andrew Kanyegirire. Welcome to this press briefing with Antoinette Sayeh, the director of the African Department here at the IMF. We have about 45 minutes, and we’ll get started now. I’ll invite the director to make some opening remarks, after which we shall field some questions. During the Q&A session, please try to keep the questions precise and brief and introduce yourself and your media house. Thanks. Antoinette?

MS. SAYEH: And good morning to everyone. Thank you for joining us today for this briefing on recent economic developments in the region, in the Sub-Saharan African region. In the remarks I’ll make, I’ll touch on three areas. First, the economic outlook. Second I’ll turn to the risks we see to that outlook. And then finally, some thoughts on how countries might go about addressing the challenges they face.

All in all, the underlying picture for Sub-Saharan African remains favorable. Specifically we expect the region and the region’s economy to expand by 5 percent this year, 2014 and to go up to 5 and three quarters percent in 2015.

Now of course as always, such headline numbers comprise of a number of different trends. At the moment we see this overall positive picture for the region, underpinned by three fairly divergent trends. First, we think the lion’s share of the region’s economies continues to enjoy strong growth, driven by continued public investment in infrastructure, buoyant services sectors and strong agricultural production.

Activity in the region’s low income countries, in particular continues to be strong. Thus overall, Sub-Saharan Africa is expected to continue being the second fastest growing region in the world, just behind emerging and developing Asia.

Now this positive picture coexists with the dire situation in Guinea, Liberia and Sierra Leone. The Ebola outbreak in these countries continues to spread unabated. And beyond the unbearable number of deaths, suffering and social dislocation that it has caused and still causes, it is also bringing extensive damage to the economies and institutions of these three already fragile countries.

And even with the disease limited to these three countries, we are seeing tangible negative economic spillovers on neighboring countries. Heavily tourism-reliant Gambia and to some -- to a lesser extent, Senegal, have seen a number of booking cancellations in their tourism industry. Some other regional transportation hubs, perhaps Ghana and perhaps Kenya, may also see transitory declines in airline and hotel activity.

The third story line relates to the countries, albeit a small number of them, where economic activity is facing headwinds from home grown policy challenges. For instance, in South Africa, growth remains lackluster due to electricity bottlenecks, weak product market competitiveness and what have been difficult industrial relations. In a few other countries, including Ghana and until recently Zambia, large macroeconomic imbalances have resulted in pressures on the exchange rate and inflation.

But in some, the solid growth that most countries in Sub-Saharan Africa have been enjoying in recent years, looks very much set to continue. It is important not to overlook this overall positive picture, even as the news is dominated by the formidable challenges that a number of countries in the region are facing. And here beyond the three countries being ravaged by the Ebola outbreak, it is also important to highlight the tremendous continuing difficulties in the Central African Republic and South Sudan, where civil conflict remains far from extinguished.

Our assessment of the region’s economic prospects are, as always, based on a number of assumptions. Perhaps the two most important ones this time around are those regarding the Ebola outbreak and the broader global financial and economic environment. If neither assumption prevails, then there would be significant downside risk to our growth projections.

So what are these assumptions? First, playing off the recently much increased humanitarian, financial and logistical support to fight the Ebola outbreak, we expect the disease to be largely confined to the three countries. And second, we expect a generally benign external environment, in particular, none of the downside risks facing the global economy materialize, notably, a more pronounced slowdown in emerging markets and particularly in China. A more protracted period of low growth in advanced economies, or disorderly normalization of monetary policy in the United States. So those don’t materialize, and our baseline projections would then hold.

Let me turn now to the implications for policies. What should policies face -- focus on, given this backdrop? For the lion’s share of countries in the region where growth remains strong, the focus has to remain on sustaining that growth and policies to make it more inclusive. Sustaining growth requires proactively addressing both the more structural bottlenecks to growth, infrastructure gaps, poor business climate, et cetera, as well as avoiding the emergence of macro economic imbalances. For example, excessive fiscal and external accounts deficits.

Here the challenge will be striking the right balance between scaling up infrastructure and other development objectives, while avoiding an unsustainable public debt buildup. Sustaining growth is a necessary condition to foster job creation and reduce poverty. But growth is not always a sufficient condition for inclusiveness, and policy attention may sometimes be necessary to ensure this, for example, by putting in place social safety nets, better targeting of public services and investment in worse off regions.

But what about policies in the countries currently being affected by the Ebola outbreak? In these countries, and I think as some of you may have heard our managing director also speak to, fiscal deficits need to widen, to enable the countries to accommodate higher Ebola related spending and to help avoid an even more pronounced decline in economic activity. The main constraint on allowing fiscal deficits to widen is of course the financing. And it is to help contribute towards this that the IMF board recently approved about 130 million US dollars in additional financial assistance for Guinea, Liberia and Sierra Leone.

But there remain further significant funding gaps, both for the rest of 2014 and for 2015, and additional support from both bilateral and multilateral creditors will be important to assist these countries. Finally, as I noted earlier, in a few countries, budgets have become over extended and financing constraints have emerged. In these cases, rapid fiscal consolidation is necessary, implemented as much as possible in a way that protects poor and vulnerable groups.

So let me stop there. I should think that many of the issues I just spoke to are discussed extensively in our new issue of our biannual Regional Economic Outlook for Sub-Saharan Africa, which we are finalizing at the moment. And it will be published on October 20^th, with launch events in Dar es Salaam and in Libreville. Thank you very much for your attention. Look forward to your questions.

MR. KANYEGIRIRE: Thank you very much Antoinette. The remarks that Antoinette just made are being distributed I think now. So we do have them if you need them. So we’ll start with the Q&A session, and I’ll start with the lady.

QUESTIONER: Hi. Very good morning to you. Thank you for your insights. With regards to the funding for the three countries that have been hit by Ebola, is that concessional lending that the IMF is offering?

MS. SAYEH: It is from -- indeed from our PRGT window, which is our concessional window at the fund. And all of the three loans to the countries are interest free. We expect them to remain that way. They are, as I said, they total $130 million. They’re covering a considerable amount of the financing gaps of some 300 million that we had estimated at the time. Those estimates need to be revised because things of course are changing quickly on the ground. But in approving the 130 million, the IMF has gone a significant way in helping countries to cover that gap. Thank you.

MR. KANYEGIRIRE: Thanks. This gentleman. Your name and media house please.

QUESTIONER: We’ve heard about the effect of a China cool down how that might -- on commodity prices. What can African resource rich countries do to mitigate against that?

MS. SAYEH: Well, there is a risk of course. That’s one of the risks to the outlook, that there could be a bigger slowdown. China of course is a significant partner and the largest single export market for Sub-Saharan Africa now, consuming a lot of the region’s exports of course. And of course China’s growth and the demand associated with it, impacts commodity prices more generally.

In countries of course, in the context of facing the vulnerabilities they do and the fluctuations in commodity prices that are constantly there, certainly need to continue to have adequate buffers, to be able to address shocks that they face from the unexpected declines in prices and have those buffers in the way of reserves that they can bring to the table if needed, to tide them through unexpected shocks, such as more significant declines in prices.

QUESTIONER: (Inaudible) to those buffers right now?

MS. SAYEH: Well, it looks -- it of course changes from country to country. They are different from country to country. Most Sub-Saharan African countries have done reasonably well in maintaining a reasonable amount of reserves. There are some countries that continue to have overly expansionary fiscal policies, and in that context, do not have the level of reserves or buffers that they would need for significant shocks. So you have to look on a country by country basis to assess whether those buffers are adequate.

MR. KANYEGIRIRE: And I’ll come to you in a minute.

QUESTIONER: Ghana is going through some problems, and your focus was (inaudible)on what government service put out, around 4 percent. Ghana’s looking a little over 7 percent. What do you think that the authorities in Ghana can do or have to do to stabilize the situation? And do you think that a possible fund program could help the situation?

MS. SAYEH: The situation in Ghana is indeed very difficult, as the government recognizes. The government put forward a demand to the IMF for a fund program back in August, as you heard in the press I’m sure. We’ve been working since then to of course be responsive to that request. And we’ve just had a mission come back from Accra in the first set of discussions towards a possible fund supported program.

The authorities in Ghana fully recognize that additional efforts are needed on the fiscal side to achieve the targets that they have set for themselves, for deficit targets for this year. They’re in the process of, I think, further refining those actions that they intend to take and to making sure that the consensus they need to follow through with, with those actions are there.

We certainly hope to be helpful to them with the program, but that needs to be further discussed of course, whether all of the actions that need to be taken are laid out and that we’re in a position to then propose a program to our board.

MR. KANYEGIRIRE: Please?

QUESTIONER: Just a quick follow up on Ghana. If you could elaborate on what the fiscal deficit targets are that they’re aiming for? I don’t know if we know that. And then kind of to follow up from the fiscal deficit, raising the fiscal deficit for some Ebola hit countries. I was wondering if the IMF would also consider raising the debt limits for countries that are experiencing some of these shocks so they are able to borrow more from the IMF if necessary in the future if things get worse? And in general, what’s kind of -- there’s some debate about the IMF debt limits, what’s going on with that. Thank you.

MS. SAYEH: Okay, there’s a lot of detail on Ghana that is already available in the Article 4 report that I hope that you’ve looked at, that’s published and that has all of the numbers that may not -- I may not recall exactly in this conversation. But certainly the Ghanaians’ were trying to achieve a deficit, if I recall correctly, of some 8.5 percent of GDP, thereabouts, on the basis of the actions -- considerable number of actions that they’d already put in place for this fiscal year.

But of course things have changed since that budget went into effect and since those actions were initially announced. The situation is difficult, and our assessment based on the impact that the vulnerabilities we see already have had on growth this year. Growth is lower than we -- from our projections, we think will be lower than have been foreseen. And in that context, the fiscal deficit as a proportion of GDP will certainly be higher. And we are, as I said before, in conversation with the Ghanaians’ about what they can do to take further actions to try to achieve the targets they set. But without further actions, that deficit is likely to be higher.

This question about whether the fund could raise debt limits to allow countries facing shocks, such as Ebola, to borrow more, I would say that the ideal and the first best solution to countries facing shocks like Ebola, huge humanitarian devastation that that causes, is of course grant financing. Significant grant financing from the donor and the partner community that would help those countries tide over those shocks.

The Fund of course provides concessional financing, but it is still loan financing. It’s not grants. And so the ideal and the first best is for countries to have as much in the way of grants to face a situation like that. And the debt limits revisions that we are of course in the process of working on and we hope to be able to take a revised debt limits policy to our board after the annual meetings, will however be very important in allowing countries more flexibility in striking that balance I spoke about between up-scaling infrastructure that they need for growth and over development spending and maintaining debt sustainability. And we will be able to roll out the new debt limits policy in the course of 2015.

MR. KANYEGIRIRE: Lady with the scarf, sorry.

Turn on your mic?

QUESTIONER: My question is specifically on Nigeria. What’s the IMF assessment or perspective on the impact of oil in terms of -- we know where US is going. US is positioned to be a major player in crude exports. Meaning I would imagine, where it’s getting its oil, one of the countries is Nigeria. It’s going to have significant impact on revenues, which could affect growth. What sort of -- and we’re talking medium term now. What sort of consideration has been given to a country like Nigeria has -- I would say, borrowed extensively to support its growth over the last several years?

MS. SAYEH: So you’re asking what happens to Nigeria’s oil sector?

QUESTIONER: My question then would be - we know Nigeria has a lot of money that it has borrowed outside the country, right? Oil is a major income generator, and the U.S. now is positioned to be a major exporter of crude, and, you know, other fossil fuels.

Are there any considerations to how to buffer that? I don't think Nigeria will be fully diversified yet out of oil to be able to service the type of debt and continue with their growth strategy by way of reinvesting. What, sort of, considerations? Do you hear anything, any talks in that? Is there any talks in the U.S. about easing the export rather than an aggressive, you know, meaning import to the U.S. of crude rather than have things that could send the country into shocks in Nigeria?

MS. SAYEH: Nigeria has, in fact, not been a big borrower in recent times. Benefited from a considerable debt restructuring, maybe some 10 years ago now, and certainly has not been borrowing any large amounts.

Of course, the oil industry is, indeed, changing. In the U.S., of course, shale oil reserves are going to be brought into production. It will mean less of an U.S. demand for oil exports from Nigeria and other countries. Nigeria's exports to the U.S. have already ceased, in oil, and from that we don’t see any major impact on the economy in the growth.

The prospects and outlook we see for Nigeria, currently, we're still projecting some 7 percent growth this year for Nigeria. I think the authorities have knocked that down to some 6.5 percent based on some of their concerns about some of the security conditions, also, that they're facing.

But Nigeria's, you know, outlook looks very robust. You may know that from the rebasing that Nigeria just recently did that the economy is, in fact, a lot more diverse than we had previously, all of us, thought. That the services sector is, indeed, a major one. Some 50 percent of Nigerian GDP now is from the services sector. So a more diversified economy, for that reason, makes a country likely to be more resilient to shocks that may come from things like oil.

QUESTIONER: You spoke about the need for fiscal consolidation, and South Africa is one of those countries that are running a very large budget deficit. Number one, what are the consequences if they fail to bring down that large deficit? Number two, which of the ways would you suggest as the best in terms of fiscal consolidation? Thank you.

MS. SAYEH: Well, South Africa, of course, has a set of challenges on the macro, but on the structural side, in particular, that still need to be addressed. The deficit level is, as you say, not as contained as one would want. South Africa has been faced with both external pressures from the slower growth, of course, in Europe, but also from domestic issues, electricity and energy supply is just not there to sustain a higher level of growth, and constrains potential growth in South Africa.

Of course, in the last couple of years South Africa has been going through some difficult industrial relations. So all of that have conspired to really lower South Africa's growth performance. Last year GDP grew by only 1.9 percent. This year we estimate 1.4 percent. Difficult environment.

South Africa has limited room on the macro side, and really all of what we're seeing in South Africa underscores the need to really accelerate progress on structural reform. In particular, labor and product market reforms that need to be taken forward to increase South Africa's competitiveness.

We understand that the authorities are very much looking to, of course, proceed with some of that in the context of the national development plan that South Africa has.

QUESTIONER: Countries like Senegal have increasing costs to taxes or bond loans. Does that type of action not create higher risks, in particular, given the volatility of financial markets? I know that Africa, you said, is doing quite well, but nonetheless, Africa is increasingly connected to the international financial markets.

MS. SAYEH: Can you please repeat your first question?

QUESTIONER: What I want to know is whether those countries that rely on bond loans do not run higher risks by resorting to such loans?

Second question. There is a lowering of the growth forecasts for Senegal because the agriculture is not as positive as expected. What are the prospects? What is the outlook for Senegal given these circumstances?

MS. SAYEH: I shall reply in English, if I may, because it's easier for me. Just to say that in terms of, you know, increased access we've seen for Sub-Saharan African countries international debt capital markets, and the issuance of sovereign debt by a number of Sub-Saharan African countries. In particular, in the last year we've seen a significant increase in that is, first and foremost, a good thing.

It shows that there's increased interest from the investor community in Sub-Saharan Africa because they see that the region's prospects are good. It underscores the progress the region has made in better macroeconomic policies over time. It, of course, helps countries to diversify their sources of financing, which is a good thing. It potentially - with the countries issuing sovereign debts - helps debt issuance, potentially, for the private sector in those countries. So all in all there are good developments there.

But countries, obviously, have to be prudent in how they take advantage of those opportunities. They need to borrow, of course, in understanding that there are some risks to the repayment of these sovereign debts. Many of them are, you know, bullet repayments that they have to make at one point in time.

There are foreign exchange risks that they have to manage between when they issue those bonds, and when their repayments are due. Underscoring the need for continued good macroeconomic policies to mitigate the risk to the exchange rate risk that they take. But we think that having those opportunities are a good thing for Sub-Saharan Africa, but they just need to manage them appropriately.

Of course, part of that management also is the good use of the proceeds of the sovereign bonds. Of course, high quality investments are important to enable them to be a position to be able to repay that debt down the road. So it is not a good thing to be issuing foreign sovereign bonds to pay wages. It is, potentially, a very good thing to do so at good interest rates if you're investing in really high-quality infrastructure. Energy, for example, that then really increases potential growth and allows you to grow more robustly.

On Senegal and the growth issues that you raised. I would suggest that we talk separately about that. Our staff that are much more in tune with the most recent estimates on Senegal can, perhaps, answer those questions better than I am able to at this point.

Senegal, of course, still has significant efforts to make on the structural side as well to enable them to continue to grow well. They're vulnerable to some shocks, and they certainly need to continue to work on containing their fiscal deficit. Of course, there's always that balance between wanting to do more on the infrastructure side and really trying to maintain a reasonable fiscal deficit.

MR. KANYEGIRIRE: At the front.

QUESTIONER: Thank you. My question relates to East Africa. Just recently we've seen GDP rebasing, now it’s middle income. Now, the region is planning to -- the whole region of East Africa planning to rebase by 2015. So I'm wondering one, what is the implication of that? Two, from the Fund's perspective how do you see this country's capacity in terms of producing reliable data, and whether you have any programs in plan in terms of capacity building? Thank you.
MS. SAYEH: Thank you. There are a number of countries that have been rebased, and Kenya being one of them, Nigeria I spoke to earlier, Ethiopia was also rebased. A few others that are coming forth later on, South Africa included.

So rebasing is a good thing because it, of course, helps countries have a more accurate picture of their economics if they rebased on a more regular basis than they've been doing. Typically, many countries have had 20 years or more pass before updating the surveys to feed their GDP estimates.

The best practice, in this area, is for countries to try to rebase on a five year basis, every five years to get a better picture of the very fast structural changes that some countries have been witnessing. So Nigeria, there was 20 years since its last rebasing, and, of course, the economy had changed considerably in those 20 years with a much higher share of the services sector, as I said.

So some countries, as you said, Kenya on that basis of the rebasing is now entering the lower middle income country status. Some structural changes in the shares of the economy that is likely to come out of rebasing in a number of countries. Some countries, of course, are looking worse in terms of their revenue effort because they may have a larger economy, larger GDP, and their revenue to GDP ratio looks less impressive than it did before. They're not reaping as much from their economies in government revenues as we thought they were.

But on the other hand, their debt burden now looks less because debt as a proportion of GDP is lower. So you will have different indicators looking differently as a result of rebasing. Having that current estimate of the structure of your economy, of course, helps policymakers to make better policy because you are in a much better position to know that your services sector is actually, maybe, too small or constrained by a number of things large enough that if it doesn't do well you're likely to really suffer overall on your growth.

So it informs policymaking in a much better way than estimates that are just not reflecting developments in the economy. So we very much encourage countries to keep rebasing their GDP, you know, on a five year basis.

QUESTIONER: The other question was about capacity.

MS. SAYEH: About capacity, what it means --

QUESTIONER: These countries. One, are you planning your program in terms of building their capacity to produce reliable data because data remains an issue?

MS. SAYEH: We've been, actually, working for some time with Sub-Saharan Africa on macroeconomic statistics. We're, in fact, seeking to invest more in that through both the work of our AFRITACs, as we call them – our African regional technical assistance centers - five of them that we have in the region that have long-term statistics advisors that work with countries regularly, and visit all of our member countries to give support on statistics.

We're working with support from other donors that help finance some of our work in the statistics area to also allow countries to benefit from the reporting and updating efforts that are needed in the macro statistics I mentioned. So there's a lot that's already ongoing on the statistics side, on macro statistics. A lot more could be done.

A lot of the surveys that are required to keep GDP estimates updated are quite expensive and need support, sometimes, from donors. But having said that, there is more that we think Sub-Saharan African authorities themselves can do to better support their statistics agencies.

Typically, statistics agencies are the most deprived in the region. With staffing issues and very constrained resources. We want to encourage governments, actually, to look at statistics as an essential expenditure, you know, that doesn't get cut first. So we're very much encouraging our countries to do more on statistics, also, from their pockets, but also urging our partner countries also to help statistics.

MR. KANYEGIRIRE: I have to move all the way to the back. The gentleman in the white shirt.

QUESTIONER: Concerning West Africa in particular, a slackening of the growth will imply a slackening of fiscal resources, therefore, will have an enormous impact. You said that the IMF recommended increasing the fiscal deficit, and I would like to know to what extent you can allow for the increasing of this fiscal deficit? Because the IMF, at the same time, is recommending fiscal consolidation to improve the public spending situation. So what does the IMF recommend to overcome this paradoxical situation?

MS. SAYEH: In the context of programs we're supporting in those three countries, and in neighboring countries that may also be putting forward programs on preparedness we certainly are willing to look at the fiscal deficits that have been set in those programs, and allow countries to have larger fiscal deficits in order to deal with the declining revenues that they're facing, and still sustain some of the very important expenditure. Even beyond the Ebola epidemic expenditure, but other expenditures that are important to their growth and development efforts. So we are certainly willing to see that.

As I said, that also presumes financing, and financing is necessary to be able to do that. So that's what one has to work on. In those three countries, in particular, urging donors to do more on the budget support side to help countries face those new demands and limited revenues.

Having said that, of course, one also needs to look within those budgets that countries have to make sure that there is no room for reallocation. If there is room for reallocation from high priority spending and, sometimes, wasteful spending, certainly that should be part of the picture as well to make the best use of the limited resources those countries have.

MR. KANYEGIRIRE: Gentleman at the back, yes.

QUESTIONER: In our country the government of our country is fighting corruption, and carrying out all sorts of other actions to encourage growth, and still this country doesn't seem to be able to pick up. The upcoming elections could further aggravate the fiscal deficit. In your view, what could the public authorities do to meet the present challenge?

MS. SAYEH: Implementing macroeconomic and structural reforms over a number of years, some good results, some challenges as every country has when they do engage in reforms. Everything is not as 100 percent as we would like.

I should say that in the last couple of years Benin certainly has been growing better than it had been for some time. The authorities have proceeded with a number of more difficult reforms around the customs, overhauling the customs area that is very important to revenues in Benin.

Also, some issues in the cotton sector, the management of the cotton sector. Government is still very much looking to withdrawing from the intervention it had to make in the cotton sector in the last couple of years to respond to some of the problems encountered when the cotton sector was privatized.

So there are a number of efforts that are underway in Benin to continue to carry forth an economic reform program. Our program of support with Benin ended a few months ago. The government is interested in a new Fund supported program, but wants some time to evaluate how they have done in the previous programs, which is a good thing.

It's always good, we think, to take stock of the accomplishments in the previous program, and then to layout clear objectives for a new program. That's what they're seeking to do. We hope to help them to make even more progress on these issues that you identified.

QUESTIONER: According to the result that you got from the previous program are they going to get the new one or --

MS. SAYEH: Well, that remains to be discussed, and, of course, negotiated. They have felt that they needed a bit more time to evaluate the program. I think we'll be, possibly, going there some time in the new year to start discussing a new program.

MR. KANYEGIRIRE: I'm sorry. We have time for one more question, I think, and I'll go to the gentleman to the extreme left.

QUESTIONER: Given South Africa's integration in the global financial markets, do you think it will suffer more when others, when the U.S. interest rates actually increase? Because there was a tapering, but now they will increase at some point. Do you think they will be suffering more?

Also, how do you see this problem of low economic growth in South Africa? Is it something temporary or is it more structural?

MS. SAYEH: Well, you know, I think a number of countries, not just South Africa, a number of countries, including the frontier countries in Sub-Saharan Africa are increasingly vulnerable to developments that may come from how the U.S. monetary policy is returned to normal execution.

Those countries are the ones that have, you know, recently tapped into international capital markets or have sovereign bond issues that I talked about before. Of course, if the exit from the unconventional monetary policies is less smooth than everyone hopes there are likely to be difficulties for all of those countries which may face higher interest rates, and needing to adjust to those. So I don't think it's just South Africa that will be vulnerable to those developments.

Growth challenges in South Africa, as I said, I spoke about the role that limited energy supplies are having in reducing potential growth, and growth this year in South Africa. The enduring structural reform challenges that have not yet been fully addressed on the labor market and product market side. So these are all things that the South African authorities are committed to addressing, and are charting a way forward to do so.

MR. KANYEGIRIRE: Thank you. Thank you very much, Antoinette. It's been a bit of a long stretch. Thank you all for coming.

MS. SAYEH: Thank you everyone.