Press Release No. 13/415

Press Release: IMF Sees Sub-Saharan Africa Keeping the Pace of Economic Growth

October 31, 2013

Sub-Saharan Africa’s growth is expected to pick-up in 2014, despite the global headwinds that have moderately lowered the region’s performance in 2013, the International Monetary Fund (IMF) said today, noting that the softer outlook for 2013 reflects both a more adverse external environment and diverse domestic factors. In its October 2013 Regional Economic Outlook: Sub-Saharan Africa, Keeping the Pace, the IMF said that strong investment demand continues to support growth in most of the region, while output is projected to expand by 5 percent in 2013 and 6 percent in 2014.

“It is heartening to note that sub-Saharan Africa’s economies have generally maintained a strong pace despite some tensions observed in the external environment, including somewhat slower growth in emerging market economies” said Ms. Antoinette Sayeh, Director of the IMF’s African Department. “This is a reflection of continued sound macroeconomic policies as well as robust domestic demand, in particular investment in infrastructure and productive capacity,” she added.

The downside risks for the region mainly come from external factors. “A further weakening in emerging markets—including some of sub-Saharan Africa’s new economic partners—or in advanced economies could affect sub-Saharan Africa’s prospects for growth, mostly through commodity price declines,” Ms. Sayeh said. “Nevertheless, a downside scenario that we simulated suggests that large—but plausible—temporary declines in international commodity prices would not derail growth at the regional level. That said, growth and external current account balances could be significantly affected in some resource-intensive countries.”

The main domestic vulnerabilities stem from weather and political events. “These pose important risks to individual countries and perhaps their immediate surroundings, but are less of a threat at the regional level,” Ms. Sayeh said.

The report also finds that widening current account deficits in sub-Saharan Africa since 2008 tend to reflect higher investment rates, although in some countries lower current account balances also reflect lower saving. As financial conditions eased in the aftermath of the global crisis, the report says, current account deficits in sub-Saharan Africa widened significantly, in most cases reflecting increased investment in export-oriented activities and infrastructure. In most countries these deficits have been financed largely by foreign direct investment, without raising external indebtedness. This circumstance has mitigated financing risks typically associated with external deficits, although other risks remain present, including those pertaining to the return on these investments. In the medium term, as investments mature and export capacity increases, current account deficits are expected to narrow.

However, the report notes that reserve buffers are low in a number of countries; in some, widening external current account deficits have resulted in significant debt accumulation. The report makes a number of recommendations, including the need for greater revenue mobilization, closer monitoring of public debt levels, and adjustments in countries witnessing rapid debt accumulation. It also recommends that countries let currencies adjust where feasible in the face of declining commodity prices and capital flow reversals.

The Regional Economic Outlook also includes two background chapters, on drivers of growth in non-resource-rich countries and on managing volatile capital flows in frontier markets.

“The common perception that the strong growth in sub-Saharan Africa since the mid-1990s has been simply the result of relatively high global commodity prices, particularly those of non-renewable natural resources—such as oil and minerals—is really an incomplete view ” Ms. Sayeh said. The chapter finds that several non-resource rich, low-income countries have been able to sustain high growth rates over a relatively long period on account of improvements in macroeconomic policy combined with structural reforms and reliable external financing.

The chapter on capital flows finds that, in the past three years, foreign portfolio flows to sub-Saharan Africa’s frontier economies have grown considerably. The recent bout of global financial market volatility has so far left most of these countries relatively unscathed. “Nonetheless, there is no room for complacency,” Ms. Sayeh said. “Frontier markets in the region should strengthen policy frameworks to ensure that access to capital markets is beneficial, with the appropriate combination of policies depending on country-specific circumstances.”