RESTORING THE CONDITIONS FOR STRONG AND SUSTAINABLE GROWTH…
Growth momentum in sub-Saharan Africa remains fragile. In 2016, growth slowed in about two-thirds of the countries in the region—accounting for 83 percent of regional GDP—and is estimated to have reached just 1½ percent. This marked the region’s worst performance in more than two decades. Even the modest rebound to 2½ percent expected in 2017 will be to a large extent driven by one-off factors in the three largest countries—a recovery in oil production in Nigeria, higher public spending ahead of elections in Angola, and the fading of drought effects in South Africa—combined with modest improvements in their terms of trade. This aggregate number masks considerable heterogeneity across the region, with some of the largest western and eastern African countries still expected to grow at 5 percent to 7½ percent. Nonetheless, the underlying regional momentum remains weak, and, at this rate, sub-Saharan African growth will continue to fall well short of past trends and barely exceed population growth.
The deterioration in the overall outlook partly reflects insufficient policy adjustments.
• The countries hardest hit by the new environment of low oil prices (Angola, Nigeria, and the Central African Economic and Monetary Community, CEMAC are still struggling to deal with the resulting budgetary revenue losses and balance of payments pressures. With policy adjustments delayed and still limited in those countries, spillovers from lower oil prices to the non-oil sectors continue to damage their economies, and could generate even deeper difficulties if left unaddressed. Other commodity exporters, such as Ghana, Zambia, and Zimbabwe, are also grappling with larger fiscal deficits.
• In non resource-intensive countries, such as Côte d’Ivoire, Kenya, and Senegal, fiscal deficits have remained high for a number of years, as governments rightly sought to address social and infrastructure gaps. While growth remains robust, vulnerabilities are starting to emerge—public debt is on the rise, borrowing costs have increased, and, in some cases, arrears are emerging and nonperforming loans in the banking sector are increasing, even in a context of strong growth.
The outlook is also clouded by the incidence of drought, pests, and security issues that have contributed to about half of sub-Saharan African countries reporting food insecurity. The impact of the drought that hit most southern African countries in 2016 is fading, but a new bout of drought is affecting parts of eastern Africa, pest infestations are impacting agriculture in a number of southern African countries, and famine has been declared in South Sudan and is looming in northeastern Nigeria as a result of past and ongoing conflicts.
Meanwhile, the external environment is expected to offer only limited support. Recent improvements in commodity prices, while providing welcome breathing space, will not be sufficient to address the existing imbalances in resource-intensive countries. The prospect of monetary policy normalization in the United States could further tighten external financing conditions, which places even greater emphasis on appropriate national policy frameworks.