Moderate downward revisions for sub-Saharan Africa growth outlook, says IMF

The International Monetary Fund (IMF) last week released its World Economic Outlook update for October 2013 and according to the sub-Saharan African regional outlook, softening and increasingly volatile global economic conditions are expected to have only a moderate downward impact on sub-Saharan Africa this year and next.

Growth is projected to remain robust at about 5% in 2013 and 6% in 2014, backed by continuing investment in infrastructure and productive capacity. This outlook is not as strong as portrayed in the May 2013 edition of the economic outlook report, reflecting, in part, a more adverse external environment – characterised by rising financing costs, less dynamic emerging market economies, and less favourable commodity prices – as well as diverse domestic factors. However, the magnitude of the revisions is modest (-0.7% of GDP on average in 2013 and -0.1% in 2014).

Most of the major risks to the outlook for the region stem from external factors. Large but plausible temporary international commodity price shocks would not derail average headline growth in sub-Saharan Africa, but growth and current account balances could be significantly affected in some resource-intensive countries. Other risks to the outlook include further weakening in emerging market economies (including some of sub-Saharan Africa’s new economic partners) or in advanced economies. Home-grown hazards, such as those related to weather-driven supply shocks or political events, pose important risks to individual countries and perhaps their immediate surroundings, but are less of a regional threat.

The recent widening of the current account deficit in many countries in sub-Saharan Africa reflects, in most cases, increased investment in export-oriented activities and infrastructure, notes the IMF. To a significant extent the increased deficits are being financed by foreign direct investment and capital transfers. Nevertheless, there are some economies in which the deficits have been accompanied by lower saving or higher external borrowing, giving rise to some concern.

Fiscal deficits have remained elevated in a large set of countries since the global crisis. Although in most countries government debt remains manageable, a few cases now need fiscal consolidation to ensure sustainability of the public finances in the medium term or to rebuild buffers. In many low-income countries, revenue mobilisation remains a priority to provide resources for social and capital spending. Monetary policy settings seem appropriate in most countries, as inflation continues to moderate in an environment of benign food price dynamics.

Looking ahead, policy makers should focus on structural reforms for growth and inclusiveness, and will need to grapple with the risks of a lasting reduction in momentum in commodity prices as the world economy transitions towards a new configuration of growth drivers, concludes the broad overview summary, but all in all, sub-Saharan Africa remains on a positive growth trajectory which should continue to be markets positive despite any shocks that may have a short term negative effect.