Roundup: IMF urges policy reset in sub-Saharan Africa amid weakening growth

Sub-Saharan Africa is set to experience a second difficult year as the region is hit by multiple shocks after a prolonged period of strong economic growth, the International Monetary Fund (IMF) warned on Tuesday.

The IMF said in its latest Regional Economic Outlook for Sub-Saharan Africa that growth in the region as a whole is projected to fall to 3 percent in 2016, the lowest level in some 15 years, although with considerable differences across the region.

"Faced with rapidly decreasing fiscal and foreign reserves and constrained financing, commodity exporters should respond to the shock promptly and robustly to prevent a disorderly adjustment," said Antoinette Sayeh, Director of the IMF's African Department.

Sayeh said the steep decline in commodity prices and tighter financing conditions have put many large economies under severe strain.

"The sharp decline in commodity prices, a shock of unprecedented magnitude, has put many of the largest sub-Saharan African economies under severe strain," she said.

As a result, oil exporters, such as Nigeria and Angola but also most countries of the Central African Economic and Monetary Union, continue to face particularly difficult economic conditions.

"Non-energy commodity exporters, such as Ghana, South Africa and Zambia, have also been hurt by the decline in commodity prices," the IMF said.

The report calls for a stronger policy response to counter the effect of these shocks and secure the region's growth potential.

"Africa needs a substantial policy reset to reap the region's strong potential. This is particularly urgent in commodity exporters and some market access countries, as the policy response to date has generally been insufficient," Sayeh said.

Sayeh said given the substantially tighter external financing environment, market access countries in which fiscal and current account deficits have been elevated over the last few years will also need to recalibrate their fiscal policies.

"Such recalibration would help them to rebuild scarce buffers and mitigate vulnerabilities if external conditions worsen further," she said.

The report says several southern and eastern African countries, including Ethiopia, Malawi, and Zimbabwe, are suffering from a severe drought that is putting millions of people at risk of food insecurity.

However, Sayeh stressed that the outlook remains favorable as many countries in the region continue to register robust growth, and the impact of these shocks varies significantly across the region.

"In particular, most oil importers are generally faring better with growth in excess of 5 percent in countries such as Côte d'Ivoire, Kenya, and Senegal, as well as in many low-income countries," Sayeh said.

According to IMF, while the immediate outlook for many sub-Saharan African countries remains difficult, the region's medium-term growth prospects are still favorable.

The underlying domestic drivers of growth at play over the last decade generally continue to be in place. In particular, the IMF said the region's much improved business environment and favorable demographics should help bolster growth in the medium term.

"In most of these countries, growth is being supported by ongoing infrastructure investment efforts and strong private consumption. The decline in oil prices has also benefited many of these countries, though the drop in prices of other commodities that they export, and currency depreciations, have partly offset the gains," IMF said.

Sayeh said as revenue from the extractive sector is likely durably reduced, many affected countries critically need to contain fiscal deficits and build a sustainable tax base from the rest of the economy.

"For countries outside monetary unions, exchange rate flexibility, as part of a wider macroeconomic policy package, should also be part of the first line of defense," she said. Endit