Maintaining Growth in anUncertain World

Regional Economic Outlook for Sub-Saharan Africa

African DepartmentInternational Monetary Fund

November 13, 2012

Outline

• Recent Developments and Near-term Outlook

• Risks to the Outlook

• Policy Choices

2International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

The Global Context: Slowing growth, most marked in the advanced economies

3International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1-10

-5

0

5

10

15

United StatesEuro areaDeveloping Asia

Perc

ent c

hang

e

Selected Regions: Real GDP growth, percent change from a year earlier, 2007-2012Q2

Selected Regions: Real GDP growth including projections, 2007-2013

2007 2008 2009 2010 2011 2012 2013-4

-2

0

2

4

6

8

10

12

WorldWorld (previous projection in April 2012)Advanced economiesDeveloping Asia

Perc

ent c

hang

e

SSA output growth quite strong, but sizeable variation across country groupings

4International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

• Domestic demand, investment, have provided support

• Recovery from drought and new resource projects too

Sub-Saharan Africa: Real GDP Growth, 2007-2013

2007 2008 2009 2010 2011 2012 2013-10

-5

0

5

10

Sub-Saharan AfricaDeveloping AsiaLatin America and the CaribbeanCentral and Eastern Europe

Perc

ent c

hang

e

2007 2008 2009 2010 2011 2012 2013-2

0

2

4

6

8

10

12Average, Sub-Saharan Africa Oil exporters MICs LICs Fragile

Perc

ent c

hang

e

Inflation: slowing from 2011 levels, although with food price shocks a risk factor.

5International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

Sub-Saharan Africa: Food and Nonfood inflation, 2008-2012 May

Sub-Saharan Africa: End-of-period CPI Inflation, 2008-2013

Jan-

08Ap

r-08

Jul-0

8Oc

t-08

Jan-

09Ap

r-09

Jul-0

9Oc

t-09

Jan-

10Ap

r-10

Jul-1

0Oc

t-10

Jan-

11Ap

r-11

Jul-1

1Oc

t-11

Jan-

12Ap

r-12

0

5

10

15

20

25

Total inflationFood inflationNonfood inflation

12-m

onth

per

cent

chan

ge

2008 2009 2010 2011 2012 20130

5

10

15

20

25Average, Sub-Saharan Africa Oil exporters MICs LICs Fragile

Perc

ent c

hang

e

Fiscal deficits remain elevated; debt ratios manageable but rising in several countries.

6International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

Avg. 2004–08

2010 2011 2012 2013-6

-4

-2

0

2

4

6

8

10

Sub-Saharan AfricaOil exportersMICsLICs

Perc

ent o

f GDP

Sub-Saharan Africa: Overall Fiscal Balance, 2004-2013 Sub-Saharan Africa: Government Debt Ratios, 2000-2013

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

0

10

20

30

40

50

60

70

80

90

100

MICs

LICs

Perc

ent o

f GDP

Sluggish external demand contributes to widening current account deficits

7International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

Selected Country Groups: Exports (Three-month moving average, value index), 2008-2012 May

Avg. 2004–08

2010 2011 2012 2013-15

-10

-5

0

5

10

15

20Sub-Saharan AfricaOil-exportersMiddle-income countriesLow-income and fragile countries

Perc

ent o

f GDP

Selected Country Groups: External Current Account Balance, 2004-2012

Jan-

08Ap

r-08

Jul-0

8Oc

t-08

Jan-

09Ap

r-09

Jul-0

9Oc

t-09

Jan-

10Ap

r-10

Jul-1

0Oc

t-10

Jan-

11Ap

r-11

Jul-1

1Oc

t-11

Jan-

12Ap

r-1250

100

150

200

250Middle-income countriesLow-income countriesFragile countriesWorld

Inde

x, Ja

n 08

=100

….. but so do rising domestic investment levels in many countries

8International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

Sub-Saharan Africa: Changes in Current Account and Investment, 2007-2012

-10

-5

0

5

10

15

20

Deterioration in current account position, 2007-2012Changes in investment, 2007-2012

Perc

ent o

f GDP

In sum: the outlook for sub-Saharan Africa remains solid in our baseline projections…

9International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

• Near-term outlook for growth remains positive

• Supply-side factors and stronger policy frameworks are playing significant roles

• But risks are elevated

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20132

3

4

5

6

7

8

9

Real

GDP

grow

th, p

erce

nt

50 percent70 percent90 percent

Sub-Saharan Africa: Growth Prospects, 2002-2013

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

10International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

Risk scenario: Intensification of euro area stress in the near term

11International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

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

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

1

2

3

4

5

6

7

8

Perc

ent c

hang

e

Baseline

Adverse Scenario

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.

12International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

Policy Principles: “the baseline outlook”

13International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

1. Countries experiencing strong growth and favorable export prices should move to strengthen fiscal positions.

2. Accommodative fiscal policy is warranted in middle-income countries where growth is weak – but the margin for maneuver is narrowing as debt levels rise.

3. Most low-income countries and fragile states need to strengthen domestic revenue bases, given investment needs and risks to aid flows.

4. 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.

Policy Principles: “A significant, but temporary, global downturn”

14International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012

No one-size-fits-all, but1. 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.

2. 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.

Thank You

15International Monetary Fund, Regional Economic Outlook for sub-Saharan Africa, October 2012