Transcript

Transcript of April 2021 Sub-Saharan Africa Press Briefing

April 15, 2021

Speakers:

Abebe Aemro Selassie
Director, African Department, IMF

Andrew Kanyegirire
Senior Communications Officer, IMF

Andrew Kanyegirire: Good morning and good afternoon. Thank you for joining us, and I hope you are all keeping well. My name is Andrew Kanyegirire. I'm with the Communications Team, here at the IMF. Welcome to the April 2021 Virtual Spring Meetings Regional Economic Outlook Press Briefing on Sub-Saharan Africa. I'm joined by Abebe Aemro Selassie, the Director of the African Department, here at the IMF. Good morning, Abebe.

Abebe Aemro Selassie: Good morning, Andrew.

MR. KANYEGIRIRE : Thank you. And before we go to Abebe for his opening remarks, just to let you know that if for some reason you lose us on WebEx, you can also view and listen in on some of our social media platforms, on YouTube, on Twitter, and Facebook. And we have also received some questions already, that have come through. In the meantime, please use the Press Center, use the WebEx chat function to send us your questions in. You can use as -- also your email to send them through. Without much further ado, I will now ask Abebe to make some opening remarks.

MR. SELASSIE : Thank you so much, Andrew. Good morning or good afternoon to you. Thank you all for joining us for the release of the April Regional Economic Outlook for Sub-Saharan Africa. Before I come to our assessment of the economic outlook, challenges, and policy priorities, I want to make -- take a moment to reflect on the pandemic and health developments in the region.

Since our October 2020 Regional Economic Outlook, Sub-Saharan Africa has confronted a second wave of the coronavirus pandemic. This second wave outpaced the scale and speed of the first wave. At the same time, we've seen, of course, truly exceptional global efforts to develop an effective vaccine, although the processing, manufacturing, procuring, and deploying vaccines is off to an unequal start around the world. Many advanced countries have secured enough vaccines to cover their populations, several times over. In contrast, many Sub-Saharan African countries, as you know, are struggling to simply vaccinate essential frontline workers.

Few countries in the region will achieve widespread vaccine availability before 2023, on current trends. With such scant access to vaccines, it leaves many countries in the region bracing for the risk of additional waves of infection. This, of course, is not just a regional concern or local concern. Ensuring vaccine coverage for Sub-Saharan Africa is a, we believe, very, very high value global public good. As such, we feel that the international community needs to come together and ramp up the supply of vaccines. We ensure that there is more than sufficient financing for facilities, like COVAX, and to quickly distribute these vaccines, you know, excess vaccines from -- from wealthy countries to countries in Africa and other parts of the world, as quickly as possible.

The economic costs of the vaccine really are tremendous. We estimate the regional economic -- the region's economy contracted by 1.9 percent in 2020. While this is somewhat less severe, about one percentage point less than we projected in October, at, you know, two percent contraction, it's still the worst outcome on record. Fortunately, the region will recover some ground this year, and is projected to expand by 3.4 percent. Even so, per capita output is not expected to return to 2019 levels, until after 2022.

This economic hardship has caused significant social dislocation, okay? In many countries, per capita income will not return to pre-pandemic levels until 2025. The number of people living in extreme poverty in Sub-Saharan Africa is projected to have increased by 32 million, just last year. There has also, of course, been tremendous learning loss for young people. Students in the region have missed more than four times the days missed by children in advanced countries, for example. These risks reversing years of progress and the region falling behind the rest of the world. The outlook for Sub-Saharan Africa is expected to diverge from the rest of -- from the rest of the world, with constraints on policy space, the vaccine rollouts I mentioned, holding back near-term recovery.

While advanced economies have deployed extraordinary support that is now driving the recoveries, for most countries in Sub-Saharan Africa, this is not an option. As we have observed throughout the pandemic, the outlook is subject to greater than usual uncertainty. The main risk is that the region could face repeated COVID-19 episodes before vaccines become available. But there are a range of other factors, such as limited external concessional financing, political instability, domestic security, or climate events that could also jeopardize the recovery.

More positively perhaps, faster than expected vaccine supply or rollout could boost the region's near-term growth prospects. This brings me to the policies and priorities for nurturing the much-needed strong recovery. I mean, the immediate recovery, of course, remains to save lives. This will require more spending to strengthen local health systems and containment efforts, as well as, of course, vaccine rollout, if that's needed. For most countries, the cost of vaccinating 60 percent of the population will require increasing health spending, in a few cases, by as much as 50 percent.

The next priority is to reinforce the recovery and unlock the region's growth potential with bold and transformative reforms. These are more urgent than ever and include reforms to strengthen social protection systems, promote digitalization, improve transparency in governments, and mitigate climate change. Delivering on these reforms, while overcoming the scarring from the crisis, will require difficult policy choices. We have, you know, no doubt about that. Countries will have to tighten fiscal space to address debt vulnerabilities, where those are present, and restore health -- the health of public sector balance sheets, over the medium-term. This is particularly the case for the 17 countries in the region that are at high risk of debt distress or already in debt distress. By pursuing actions to mobilize domestic revenue, prioritize essential spending, and more effectively manage public debt, policymakers can create the fiscal space needed to invest in the recovery.

But the region cannot do it alone, which brings me to my final point, the role of the international community and the crucial need for further support. Along with the international community, the IMF, over the last year, has, of course, moved swiftly to help cover some of the region's emergency financing requirements. This includes support via the Emergency Funding Facilities, increased access under existing arrangements, and debt relief for the most vulnerable countries, through the CCRT. The G20 Debts Risk Suspension Initiative also delivered valuable breathing space for many countries in the region, alleviating debt service pressures in excess of six and a half billion, from mid-2020, to what is through -- to what is in the pipeline through mid-2021.

For countries where deeper debt relief may be needed, the G20 common framework for debt treatment could provide a mechanism to tailor solutions to each country's circumstances. However, much more is needed to boost spending, the pandemic response, to maintain adequate reserves, and accelerate the recovery, to where the income gap, with the rest of the world, is closing, rather than getting wider.

To do this, countries in Sub-Saharan Africa will need additional external funding of around $425 billion, over the next five years. An SDR allocation by the IMF would be an important step to providing liquidity to the most vulnerable Sub-Saharan African countries. However, meeting the region's total needs will require significant contributions from all potential sources, private capital flows, international financial institutions, debt mutual support via ODA debt relief, and capacity development for countries to use these resources effectively. Thank you, and I'll stop here, Andrew.

MR. KANYEGIRIRE : So, we'll now turn to questions. We see some of you on Webex. And some have come through the Press Center and media, Media Box. I request that you keep the questions short and to the point. I will start, Abebe, with a question that came in overnight, from Julius Bizimungu, of CNBC Africa, in Kigali. And he would like to know your views on the performance of the East African subregion, as well as the outlook for commodity and tourism dependent countries in that subregion. He also has a quick follow up. What should countries be doing to support the recovery in the subregion?

MR. SELASSIE : So, on East Africa, I mean, it is one of the regions that has seen growth. The EAC, for example, the contraction in growth for last year, we estimate at -0.2 percent, close to zero, no expansion, but not kind of the deep contraction that we have seen elsewhere in the region. And this year, the recovery we expect to be also faster than the rest of the region, closer to five and a half percent. This is, of course, in keeping with the region's traditionally stronger, more robust growth performance. So, that's how the EAC [countries] are differentiated from the rest of the region.

That said, zero percent growth last year, is, of course, quite costly. In per capita terms, it still means that, living standards declined for people. So, the hit has been really big, and, going forward, much will depend on -- given that some of the countries are heavily dependent on tourism -- containing the pandemic. And as you know, clinching the vaccination levels to bring current immunity is a major theme of these Spring Meetings. Reiterating Kristalina's [IMF MD] point that in the near-term, for our countries also, vaccine policy is economic policy. Without vaccinations, we cannot move beyond this pandemic. So, getting vaccinations to rollout is really very important.

QUESTIONER : Thank you for taking my question. This is Today News Africa. I know Ethiopia has been facing many crises, instability in the Tigray region, and instability in the Oromia region, plus COVID-19. How have all those crises affected the economy of Ethiopia, under the leadership of Prime Minister Abiy Ahmed? And what would be your recommendation for Ethiopian government?

MR. SELASSIE : As you know, because of my nationality, I am required to not comment on issues in Ethiopia. But needless to say, of course, the tremendous suffering that we see in my country is without -- it goes without saying that it's heartbreaking, and, you know, getting peace and stability, not just for Ethiopia, for every other country, is going to be paramount for any kind of development progress.

MR. KANYEGIRIRE : Do we have ENCA on Webex? I have a question from ENCA on South Africa. If not, Abebe, the question on South Africa, we're going into country issues, now. So, what does the IMF think about the pace of structural reforms in the country? Do you think that they are being held back by a lack of political will? I think we've heard that tone before. And is the improved forecast for South Africa something that can be achieved, and do you see it as being worthwhile for improving the welfare of the people in South Africa?

MR. SELASSIE : South Africa is the largest and most sophisticated economy in the region. What we've seen, pre-crisis is the calibration of macroeconomic policies being as supportive as they can be, and yet, growth outcomes have been very anemic. This really points to factors beyond the tighter macroeconomic stance holding back economic activity and the kind of reforms that South Africa has needed for many years as being prerequisites to get high economic growth.

We are talking here about more competitive product markets, for example, ensuring that there is adequate supply of energy, which, in some cases, was holding back supply. So, tackling these issues remain paramount. I mean, for South Africa now, given the hit that the pandemic has caused, not just on people's lives and livelihoods, but also the potential scarring that it could have on future economic activity it is paramount that the reforms that the country needs to boost growth are pursued, as quickly as possible. Growth contracted by around 7 percent last year, which is brutal coming on top of many years where there has been limited per income capita growth. We do expect a recovery this year. In large part, not just through the reopening of economic activity, but also by building on that and ensuring that South Africa reverts to the very high growth rates that it was enjoying in the 2000s – this is going to be really critical for the peoples' welfare to improve.

QUESTIONER : I had a question about the implementation of the common framework. Zambia and Ethiopia have both said they want to use it but have taken different approaches so far to treating the private sector creditors and in particular their bondholders, so is there any clear guidance on how the framework will be implemented in practice in particular regard to bond holders? I see that there's a note that Angola hasn't chosen to use the common framework in its discussions with some of its private sector creditors.

MR. SELASSIE : So, the first important aspect of the common framework is that it allows for individual country's circumstances to be taken into account in how it's going to work. Second, we're still at the very early stages of the implementation of the common framework. As you know, there's a Chad creditor committee meeting today and that's as far as things have gone. And on the other two countries that -- the other country that is expected to have discussions in that context is Ethiopia in the coming weeks. [On] Zambia, we still have to agree on a program that we can support before finalizing the sustainable debt analysis and bringing it to creditors. But really, the key different between the Ethiopia and Zambia approaches is going to be the structure of debt and that will determine the kind of discussions that need to be had with which kind of creditors. Zambia, of course, had a lot more exposure by way of Euro bonds, than, say, Chad or Ethiopia. So that also has a bearing on the kind of discussions that need to be had.

MR. KANYEGIRIRE : Let me turn to a question that came in overnight. It is on Nigeria. It's from Business Day Nigeria. And the question is, a growth projection of 2.5 percent by the IMF for Nigeria looks quite ambitious considering where the country is right now. What do you think is fueling this growth confidence from the Fund? And how much will the global shift for greener energy affect Nigeria's economy considering that Nigeria hasn’t made a significant push in that direction.

MR. SELASSIE : We are seeing quite a lot of countries going through a recovery this year, simply by virtue of the fact that economic activity which had, by design, been held back through the containment measures countries needed to adopt last year is now going to -- provided that the pandemic continues to remain under control – rebound. And so, that will give strong growth outcomes this year in many cases. This is very different from saying that the fundamental drivers of growth over the medium to long term have been improved in a dramatic way, allowing stronger growth. So, that’s a point I would stress.

In the case of Nigeria, ensuring that the country enjoys -- unleashes its tremendous potential requires reforms in three areas in our view. I think first and foremost, is that more fiscal space needs to be created through domestic revenue mobilization to pay for investments in health, in education, in infrastructure, which Nigeria swiftly needs, so that's really. Second, I think reforms in the energy sector are going to be paramount. The cost of doing business is very high on account of the inefficiencies in the energy sector, power supply interruptions, and the famous recourse of the use of highly inefficient and harmful generator use up and down the country. Again, getting power supply, getting policies to make sure that Nigeria resolves this problem once and for all, I think, is also paramount. And thirdly, macroeconomic policy calibration, things like creating deep and liquid foreign exchange markets will be important.

QUESTIONER : I wanted to find out -- I'm from Zimbabwe -- what would be the appropriate policy responses for countries such as Zimbabwe which have limited access to international financing and currently have growing inequalities? And then, I also wanted to question your growth projections. You are less optimistic than the government, and that's like a wide disparity. Were you saying inflation will be high, upwards of 9 percent? Government is targeting 9 percent. Do you want to explain why you are less optimistic about that growth rate? And your economic growth projection is 3.1 percent against government's own 7.4 percent.

MR. SELASSIE : Starting with growth, an important reason why we are more conservative in our growth projections is, of course, exactly the point you made that Zimbabwe, unfortunately, continues to have very limited access to external concessional support. And of course, domestically also, the government's ability to finance itself from -- by issuing bonds or borrowing from the banking system is very constrained given the monetary and exchange rate framework that the country has a susceptibility to inflation. So, we feel that with the limited fiscal support, with the toll of the pandemic on economies, on peoples' lives, livelihoods, we feel that the robust, growth recovery this year will be constrained to the order of 3 percent. But we -- this is a point we'd be very happy to be proven wrong on. If growth is higher, we would be very happy.

Turning to inflation, again, it really comes back to the same factors. We do see inflation coming down from the very high levels it was in during 2019 / 2020 on account of the droughts that Zimbabwe and Zambia had suffered from. That said, given the absence of new inflows, we do see a constrained environment and a much more constrained evidence for supply of goods and services -- so we expect inflation to be a bit higher.

MR. KANYEGIRIRE : So, Lusa News Agency -- I see your question has come through. I know you had two questions. One was on the common framework which we have addressed. Then the other one is on SDR allocations for Sub-Saharan African, and he says, I understand that Sub-Saharan Africa will receive around 23 billion from the SDR allocation, but how much more do you believe will richer countries need to provide? And what is the mechanism for lending or for making that available to Sub-Saharan African countries?

MR. SELASSIE : Indeed, once our Executive Board has taken a final decision we do hope that the general allocation just approved by the IMFC will allow about 23 billion SDRs to reach 45 countries in the [sub-Saharan Africa] region. So, this will be beneficial for countries – to create fiscal space and the balance of payments support that they need to get vaccines or partly to pay for a part of the costs of vaccines and the like. So, this is very important. Over and above this, the potentially exciting outcome of the meetings was the willingness to explore options for channeling SDRs if they're not going to be used by advanced countries to vulnerable countries. This is a very useful mandate, but the work now will begin to try and see what kind of consensus there is on what kind of facilities could be supported by this. Of course, we already have one such approach where we -- this broad approach of channeling which is the financing of the PRGT, the poverty reduction and growth trust of the IMF which we use to provide concessional financing to many of the countries in the region and elsewhere. But, it's good to see that there is openness to considering other ways of channeling excess -- I mean SDRs that are not being used by other countries and so the work on this will start in earnest in the coming days.

MR. KANYEGIRIRE : Staying on SDRs. The Africa Report would like to know how we are we going to ensure accountability with regard to the use of SDRs? If you can also -- there's a few other questions on transparency in governance in general with regard to our support and programs -- talk about the transparency issue.

MR. SELASSIE : First and foremost, transparency, good governance, and fighting corruption matters not just for external financing activities or resources, but also for all the resources that governments have including tax revenue collection. So, it's paramount that, countries do their utmost to make public finances as transparent as possible and that scare resources are used as efficiently as possible - so that's an overarching point that of course needs to be made.

Second, in the context of Fund programs, in the emergency financing that we've done over the past year we have done our utmost to ensure that there is high transparency in terms of how these resources are used. A couple of examples, we are asking for, audits of how these resources have been used by countries and national authorities, and by external agencies where that domestic authorities are not able to do that.

Second example is to make public beneficial owners of contracts that are required as a result of resources being provided. So, we are doing our utmost and will continue to pursue the promotion of transparent and government accounts in all the engagements that we have with countries, including in the use of SDRs going forward.

And then the third and last point I want to make is that an important, I would say, kind of cross-cutting challenge in our region is that of collecting more tax revenues and domestic revenue mobilization -- it was a pending challenge pre-crisis, and it's now an even more robust challenge. Part of it has to do with, governments needing to come up with and identify ways through which they can simplify tax administration and come up with the right tax policy handles.

But tax payment is about strengthening the social contract between people and government. Really, I cannot stress enough how this second part would be boosted, peoples' willingness would be boosted if government accounts were more transparent. If everything that government procures was published – this is a really very important agenda that goes well-beyond the near term dealing with the pandemic in the medium term. So, this is an area where a lot of attention is going to be needed in the coming years.

QUESTIONER : I have three quick questions and I will try to be very brief, as much as possible. So, my first question is that when I look through your growth projections for Ghana, you still find [more growth], I mean in fairness, you were at 4 percent, you rise to 5 percent, but if you go through government owned and project statements, it's looking at a more higher growth than what you have put out. Why are you a little bit -- so cautious about the growth outlook for Ghana? Also, when I went through your Fiscal Monitor you projected that that GDP ratio for Ghana would cross the 80 percent mark. I wanted to find out from the Fund whether you worried about this? And what are you doing also, to ensure that countries like Ghana take some policy measures to control their debt, which could be a major threat to the economy. And my final one, on the SDR, when are you going to approve these SDR requirements? And what [is in] for countries like Ghana?

MR. SELASSIE : On Ghana, the difference in growth projections is due to several factors that can sometimes create differences between the numbers that we come up with and those that are published by government. So, one is differences in views on what the global outlook is going to look like or even the country specific outlook. And you know, that can be a source of difference. But you know another factor often is the timing of when projections are made and also depending on what the latest available data is. I think the Government Budget's numbers were done back in the fall, right? Sorry, late last year was when the numbers were being developed, if I am not mistaken. So, our numbers I think are a bit more current and we have taken into account that and more data points - so that I think accounts for a large chunk of the difference in terms of growth projections. But you know, Ghana is expected to recover by 4.5 percent I think this year, which is fairly robust recovery if you consider that the region's economy is only expanding by around 3.5. So, it is still a healthy rebound. Of course, not quite back to the 8 or 9 percent pre-crisis levels, but still a healthy rebound and something to build on.

On debt, we continue [inaudible] and [there is no] work program with Ghana. Our engagement is in the context of Article IV policy discussions. We give our advice on what we think are the kind of reforms that Ghana needs to ensure sustained development progress. And of course, one of these is indeed making sure [taking stock] – particularly now that debt levels are higher on account of the pandemic – of the fact that it has had an impact in the path of GDP. But also, through aggregates like revenue mobilization and the like it's even more important ever for Ghana to strike a healthy balance between the need to continue to address its development spending needs, but also making sure that debt sustainability doesn't get out of hand. So, how to calibrate this balance is something that we discuss with the Government. But ultimately it is up to the Government of course to come up with the policies that are needed and to take decisions.

Finally, on the SDR allocation, you know, what I can tell you is perhaps, how long it took last time around in 2009 when there was an allocation. Between the time when the decision was made to proceed with an allocation, and the resources were made available to countries, it took I think about 4.5-5 months. So, we expect the same. Same kind of path -- timeline this year and what will happen then is you know, the resources will be credited to central banks on the [order of the size of the quota] that the country has. So, 100 percent of a country's quota.

QUESTIONER : I am from the BRICS Post, and I am talking from Johannesburg, South Africa. I have two quick questions. One, (audio skip) the implementation (audio skip) African Continental Free Trade Agreement in South Africa certainly, in trade with the rest of Africa is down year on year. Has there been an increase in intra-Africa trade since January (audio skip)? And the second question relates to Mozambique. We have had terror attacks here and I was wondering whether the delays in implementing and the new liquid natural gas projects, would that delay what the IMF [sees] in terms of GDP growth?

MR. SELASSIE : So, on the AFCFTA, it is of course, one of the really far reaching, and promising initiatives that region's leaders have undertaken in recent years, with tremendous potential to promote growth, economic diversification that our countries have always sought, so it's something that needs to be built on now that the final decision has been taken to move forward with this.

Of course, the pandemic with its associated effects in terms of disrupting all manner of business activity, has meant that intra-Africa trade last year, was lower than in previous years. But we do see this as being a temporary thing and with a recovery, with the easing of travel restrictions and the border closures in some cases that took place. We are expecting an increase in intra-Africa trade. But this will not happen in, and of itself to the high degree that is expected without reforms. This includes dealing with non-tariff barriers. Dealing with that will be very important. And removing the policies that create these nontariff barriers and the regulatory, what you call restrictions, and the like, will be very important. But also, equally important is prioritizing the infrastructure that connects our countries. Working on these two will be important to make sure that the dream of the AFCFTA is fulfilled.

On Mozambique, what's going on in Cabo Delgado or Palma is just really horrendous. Horrendous. And all the more so because this insurgency, latent insurgency has been identified as a threat for many years. So, really our heart goes out to [the people of] Mozambique in this. And I think, unless this is dealt with appropriately, it will have an important bearing on the economic outlook on the country and the gas production on which the country hopes to rely going forward. As such, it is indeed something that needs to be addressed as swiftly as possible.

MR. KANYEGIRIRE : We have a few minutes left. On Kenya, we have a couple of questions that came in before. If you could speak to the recent events concerning the pushback on the loan from the Fund and whether indeed that money can be sent back by the authorities? What are the transparency measures that are built into the support? In general, how do you see Kenya's overall economic outlook? And that question is from NTV in Kenya.

MR. SELASSIE : Yes, there has been quite a bit of commentary on the Kenya Program approved 10 days ago by the Executive Board. So, a couple of points, perhaps. I think one general point, not just about Kenya, but broadly about the kind of issues that this commentary was about. In recent years, what has been clear is that there is what I've been calling a trilemma of sorts that countries have had to contend with. On the one hand, the development needs for countries have of course remained as pressing as ever and maybe even increasing with population growth. So, there is more demand to spend and to invest in health, education, infrastructure, really tremendous pressure. So, that's the first element of this trilemma. Second is of course, debt levels increasing to levels that are becoming worrisome in many countries, so this is the second element of the trilemma. And then the third element is governments being unable – unwilling, unable -- or finding it very difficult to raise taxes, and people pushing back against measure to collect more taxes.

So, how countries navigate this space, this space between these three poles has been a challenge for the last eight to ten years for many countries in the region. The pandemic has come and made this challenge even more acute because debt levels are now ratcheted up and in most countries the possibilities for higher tax collection are even more difficult. And of course, spending needs have gone up. Right? And this really has been -- some of the challenges that Kenya has been contending with in recent months, much like you know, other countries, it's not unique to Kenya.

So, how to navigate this is the issue. In our view, and I think the Government's view more importantly, is that you need a framework, a medium-term fiscal framework on how to handle and contain debt vulnerabilities and bring them down over the medium-to-long-term. And that's exactly what the Program is designed to do. And we of course, are providing financing but it's the cheapest financing that's available for the Government of Kenya at a time like this. The alternatives are either to reduce the deficit immediately, to literally very low levels which of course, would mean cutting spending or going out and raise more tax revenues. But you know, this also economically, I am not sure makes sense because at this time the economy could do with some support from government spending given how weak conditions remain. I mean, the country is still contending with some regions facing a shutdown. So, the program the Government has come up with and that we are supporting with the ECF/EFF is really designed to contend with all of the challenges that we see that country facing including containing and bring debt levels down over the medium-to-long-term. We look forward to working with the Government to address any issues that emerge.

On transparency and governance, again as I just touched on earlier, there are important elements that are built into the Program -- to promote transparency in the use of public resources including publishing of beneficial ownership data of companies that were awarded contracts for emergency resources that were used last year. I think this is really also part and parcel of continuing to build and strengthen accountability institutions in Kenya, and a lot of work in that area needs to be done. And we would be very happy to support the Government.

MR. KANYEGIRIRE : Thank you, Abebe. As usual, unfortunately we have more questions than the time we can take them in. We received all your questions, and we will come back to you bilaterally. The documents are on the website – the REO report, press release, and explainers. You can also email us for follow-up questions. Thank you very much and stay safe.