MR. KANYEGIRIRE: Thanks for making the time to come to this briefing on the African Department here at the IMF. And we'll start with some opening remarks from the Director of the African Department. It's Madame Antoinette Sayeh -- after which, we shall take some questions. Please keep the questions brief and precise. I'll invite Antoinette now to make her opening remarks.
MS. SAYEH: Good morning, and welcome to everyone. Before I start, just to say that, there's certainly an opportunity to learn a lot more about some of our reflections on sub-Saharan Africa, in the form of a seminar that we are having at 11:30. That's called "Sub-Saharan Africa: Just a Rough Patch?" It will be 11:30 to 1:00 -- not too long after this exchange. And it's going to be at the Jack Morton Auditorium at George Washington University. So, I hope those of you who are able to take advantage of that opportunity to hear more, not just from ourselves but from a panel, a very good panel, with African authorities represented in that panel. So, before I invite your questions, let me make a few remarks on the region's current economic performance and outlook, and our assessment of how countries might go about addressing the challenges they are currently facing.
After an extended period of strong economic growth, sub-Saharan Africa is set to experience a second difficult year. Growth for the region, as a whole, fell to 3.5 percent in 2015, which was the lowest level in some 15 years. And we project growth to be even slower this year, at about three percent, about half of what has been customary over the last decade, and barely above population growth. Indeed, both last year and this year, GDP per capita growth will be below one percent -- something that has not happened since the late 1990s.
To be sure, growth across the region is not uniformly affected. And many countries continue to register robust growth, including in per-capita income. Most oil importers are generally faring quite well, with growth in excess of five percent or even higher rate in countries such as Côte d’Ivoire, Kenya, and Senegal -- and in many low-income countries. 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 benefitted these countries. But the windfalls have tended to be lower than expected. This is because currency depreciations in many of them have meant that low prices in local currencies have declined less than global oil prices. The decline in the prices of other commodities has also partly offset the gains of lower oil prices for those countries in the region that export non-energy commodities.
In close to half of the countries in the region, however, growth has slowed down markedly. This slowdown comes on the back of the much more difficult external environment.
First, the sharp drop in commodity prices has put many of the larger sub-Saharan African economies under severe strain. While oil prices have recovered somewhat, compared to the beginning of the year, they are still more than 60 percent below their 2013 peak levels. And this is truly a shock of unprecedented magnitude. As a result, oil exporters, such as Nigeria and Angola, but also most of the CEMAC countries continue to face particularly difficult economic conditions. We forecast growth to slow further for the group of the region's oil exporters in 2016, to 2.5 percent from as much as 6 percent in 2014. Non-energy commodity exporters, such as Ghana, South Africa, and Zambia, have also been hurt by the decline in commodity prices.
Second, for most of the region's frontier markets, external financing conditions have tightened substantially, compared to the period until mid-2014, when they enjoyed ample access to global liquidity.
Third, 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.
All this notwithstanding, let me stress that, in our view, medium-term growth prospects remain favorable. True, the immediate outlook for many sub-Saharan African countries unfortunately remains difficult and clouded by downside risk, but beyond these current challenges, the drivers of growth at play domestically over the last decade generally continue to be in place. In particular, the much-improved business environment and favorable demographics should play a supportive role in the coming years.
But to reap this strong medium-term potential, a substantial policy reset is critical in many countries of the region. And the reset is urgent, as the policy response to-date has generally been insufficient. In commodity-exporting countries, fiscal and foreign reserves are depleting rapidly, and financing is constrained.
Consequently, commodity exporters should respond to the lower export earnings and budgetary revenues promptly and robustly, to prevent a disorderly adjustment.
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.
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 adjust their fiscal policies. Such readjustment would help to rebuild scarce buffers and mitigate vulnerabilities, should external conditions worsen further.
Some of these measures may dampen economic growth and activity in the short term, but they are essential to prevent a possibly sharper and more disruptive adjustment in the future if decisive action is not taken now. With a policy reset, we believe that countries in the region will be well-positioned to reap the substantial economic potential that lies ahead.
Let me stop here and mention that our semiannual Regional Economic Outlook for Sub-Saharan Africa, which deals with the issues I just mentioned and other critical topics, will be published on May 3. The launch events will take place in Kampala and Abidjan.
Finally, I would like to close by providing an update on Mozambique, given recent press reports about the existence of new loan transactions associated with the security and defense sectors. We have received confirmation this week from the authorities of the existence of a large amount of borrowing that had not previously been disclosed to the IMF. The undisclosed borrowing exceeds $1 billion and significantly changes our assessment of Mozambique's macroeconomic outlook. We are currently ascertaining, in cooperation with the authorities, the facts regarding this borrowing. We have advised the authorities that any undisclosed debt-related transactions, irrespective of their purpose, need to be reported transparently and publicly. Such disclosure is essential to ensure full accountability of the government to its citizens and Parliament, allow an accurate assessment of the previously undisclosed debt on the macroeconomic outlook, and assess the impact of these possible transactions on the IMF-supported arrangements with Mozambique. The mission that was scheduled to initiate discussions next week for reviews of Mozambique's arrangements under the policy support instrument and standby credit facility has been cancelled, pending a full disclosure and assessment of the facts. Thank you very much for your attention. Let me now open the floor to your questions.
MR. KANYEGIRIRE: Thank you very much, Antoinette. So, we have about 35 minutes left. It's a full room again. Keep the questions precise. Mention your name and media house. We shall start from my right on the side.
QUESTIONER: Two questions – one is on the Nigerian economy which is not doing well. I want to know how it will impact on the West African economy. Then secondly, Ghana has a program with the Fund and one of their expectations is that our debt levels would come down. Right now we have seen increases in debt levels and people are criticizing by saying that after all the program hasn't achieved its aim. I want to find out whether the criticism is justified.
MS. SAYEH: Okay thank you for those questions. On the first one in terms of the impact of what is happening in Nigeria and the West African region we had some time ago, of course, done work on what would be the spill overs from developments in the two largest economies in Sub-Saharan Africa - Nigeria on one hand and South Africa - on the other on surrounding countries. I think it is fair to say that the analysis we did a while ago has been confirmed by a more recent analysis we have done since which on the basis of formal economic data, that is data that captures not the informal sector that is also a big part of the story especially in West Africa between countries, but also that data which suggests that there are minimum spillovers from the difficult situation in Nigeria to neighboring countries. But we know for a fact that much of the trade between Nigeria and its West African partners and here one has the example of Benin in the form of a lot of petroleum activity that goes on between these two countries. If one were to be able to capture the impact of the formal sector, I am sure that we would reach a somewhat nuanced conclusion. In addition to that, there are considerable spillovers that may be possible from the fact that Pan-African banks are now an increased feature of the relationships between both Nigeria and South Africa and the rest of Sub-Saharan Africa. The model that those banks employ that draws on a lot of domestic financing may suggest that those spillovers are not dramatic, but they are certainly a risk of contagion from those Pan-African banks if their activities are not properly supervised and the coordination of supervision between different countries is not effective. And of course in South Africa -- you didn't ask about South Africa, but I will just say that in the case of South Africa, for example, there are of course the SACU revenues that are shared between Southern African countries based on trade. Those revenues are, of course, declining for countries in the region because of the trade trends in South Africa and that creates some volatility in revenues for those countries.
On Ghana of course and the Ghana program let me say that we have been quite satisfied and encouraged with the implementation of the program in Ghana. As you know, in January we had the second review of the program with our Board. And we shall be doing a mission for the third review in the next week actually. We are encouraged by the fact that the government has made quite an effort to stick with the targets under the program and the fiscal is on track. And of course, as you say, one of the objectives of the program in Ghana is to help the government contain and reduce debt through performance in increasing the primary fiscal balance, and in doing that limit the need for financing through debt both be it domestic or foreign external debt and Ghana is making progress in that regard. Of course, people see the fact of the financing last year that was done in the form of the sovereign bond issue and the expense of that is something that undermines debt sustainability.
The choice for Ghana in terms of available financing unfortunately has been limited, and was limited at that time. The access to the sovereign bond market was always part of the financing plan. The timing may not have been the best in terms of increased expense of that given the global market developments, but it was certainly consistent with the debt management strategy that had been designed under the program. At the time, of course, domestic debt was considerably more expensive for Ghana. So we are confident that with the pursuit of the fiscal adjustment effort in the course of this year and beyond that Ghana will indeed be successful in containing its debt.
QUESTIONER: Thank you very much. I am interested in the Portuguese speaking countries in Africa. Angola has made a formal request to the IMF to start discussions on the Extended Fund Facility – can you please elaborate about this three year economic program. And going back to Mozambique, it is a country that depends on external dollars to keep up with its domestic budget so on this new secret loan isn’t it affecting the countries international credibility and are you happy with explanations that Mozambique has given to you in the past few days?
MS. SAYEH: Thank you very much. For the first question on Angola, of course, this is one of the economies that has been hit very badly by the oil price shock, with Angola depending on 95 percent of its exports on oil and 70 percent of government revenues. It is a very difficult time for Angola. The Angolans have pursued efforts to adjust to that shock. There is still more work to be done, of course, given the magnitude of this shock, but some efforts have been encouraging and indeed they have very recently in March made a formal request to the IMF for a three year program under the extended fund financing facility. We are in the process of beginning discussions with them on a possible program that would be supported by that facility in the context of the Spring Meetings, of course, with the delegation here we have had some discussions and we expect to follow that up with a mission to Angola to further discuss the details of that program. It is still too early to say what the details would be because we have just started that, but we certainly expect to follow up fairly quickly on those discussions.
On Mozambique, certainly this is a very major development that we are still seeking to fully understand and that all of Mozambique’s partners I am sure are eager also to understand and to appreciate the impact the macroeconomic impact of this considerable volume of debt, and how that impacts their ability to continue to provide their planned financing to Mozambique. We have certainly had discussions with the Minister here who has, as I said in my opening remarks, confirmed to us that borrowing and has also promised to give us additional information so that we have all the facts we need to make our assessment. So on that basis I certainly am comfortable with waiting to get the promised information from the Minister and then to pursue our assessment of the overall impact both on the macroeconomic prospects for Mozambique and for what next steps our relationship will have.
MR. KANYEGIRIRE: Can I request that we keep it one question per person.
QUESTIONER: I wanted to ask you about Zambia, how far along are the talks to do with the possible future lending and reform program?
MS. SAYEH: Zambia has also indicated to us that they would certainly be interested in discussing and pursuing an IMF supported program and we remain open to beginning those discussions. Of course, and we have in the context of these Spring Meetings had our usual discussions that we do with all country authorities including Zambia. And we expect that those preparatory discussions will be a good underpinning for ultimately preparing a program that the Zambians would want to take forward, but we don’t see the full preparation of that program until the fourth quarter of this year, after the elections in Zambia.
QUESTIONER: Can you talk a little bit about Nigeria? Has the Fund had any discussions with the Nigerians on any type of assistance, either financial or otherwise? And can you just give us your broad macro take on the situation?
MS. SAYEH: Nigeria, of course, is very heavily impacted by the declining oil price. Also, in the course of the last year the new authorities have been taking their positions in Nigeria and trying to lay out an implementation strategy and to address and adapt to the shock. We have been in many discussions with Nigeria of course, on a regular basis. We have a Senior Resident Representative and a Mission Chief based in Abuja, and so that gives us an ability to have a day-to-day interaction with the authorities.
We have been also at the very highest levels of the IMF, engaging with the Nigerians as you saw in the form of our Managing Director's visit to Nigeria in January. We've also, of course just gone to the Board, our Executive Board, with the Article IV report on Nigeria. That was discussed by our Board on March 30th, and is available on our website. And that has, you know, all of the analysis of our assessments on the macroeconomic developments in Nigeria, and the policies that are needed to adjust to the shocks.
Nigeria depends on oil revenues considerably. The nature of the revenues that Nigeria currently gets, does not reflect what is a more varied economy, and Nigeria is also very heavily dependent on oil revenues.
Revenues as a whole for Nigeria are only about 7.5 percent, very low revenue to GDP ratio, and Nigeria has now the challenge of trying to broaden them. Diversifying revenue sources to make sure that it can continue to finance its needs beyond oil, and that is certainly a focus of the authorities currently, that is to expand their tax base, and to increase non-oil revenues. That's a very important priority from the perspective of creating the fiscal space they need to create, to continue to spend in a way that promotes growth in their economy. Growth has, of course, come down, considerably in Nigeria, to some 2.5 percent or so, last year, from what used to be closer to 6 percent, so there’s been quite an impact there.
On the fiscal side, of course, some efforts to raise more revenue to take a look at the expenditure side, and make sure that the investments that are being taken forward are the highest priority ones, that will be able to help them sustain growth. And the budget that has been prepared and submitted to their parliament, seeks to do those things. It is still awaiting the approval of the President, we hope that takes place quickly to be able to formerly implement that budget, but a lot has been already done to address some of the issues there.
As you know, the Nigerians have been very focused on issues around governance, and dealing with corruption, and including in the oil sector, there have been some very encouraging steps taken. On the exchange rate side that has been the focus of quite a bit of attention in the press, the authorities initiated an initial devaluation of the naira to be able to help them adjust to the shock. But since that time, of course, they have put in measures to limit movements of the exchange rate, and also put in administrative measures to limit the access to foreign exchange in some sectors, which we think has been detrimental to the growth and recovery in Nigeria. And you'll see in the Article IV Report, that we discussed that in some detail, given the fact that those restrictions are at odds with Nigeria's commitments as an IMF member country in terms of exchange restrictions. So we hope that those restrictions can be eliminated, and that Nigeria can move to a more flexible management of exchange rates.
On the monetary policy side also, we have seen a recent increase in the policy rate. That is encouraging in terms of looking at an overall package for adjusting to the shock. It is not simply fiscal policy on its own, or monetary policy on its own, or exchange rate policy on its own, but a combination of those as a coherent package, and that is in addition to structural reforms that Nigeria needs to take forward to adjust appropriately to the shock in a way that promotes growth, and inclusive growth.
QUESTIONER: Could you tell us? Did the Mozambicans give you any indication, where this billion dollars came from, and where it went?
MS. SAYEH: As I said before, we are still ascertaining all of the information, and still waiting to receive more information from Mozambique on the nature of this borrowing, and the use of that borrowing. We certainly have learned from the Mozambicans that that borrowing came from two sources, and as you saw this was also reported in The Wall Street Journal, and in other sources. One of those sources was Credit Suisse, and the other was VTB Bank, the Russian bank. So, that’s what we know today, and we expect that we will learn more about the nature of the borrowing, and eventually how it was used as well. We don’t have more details on that.
QUESTIONER: At the beginning of the week, the World Bank told Cameroon that it should find a way to manage its debt. We are a high-risk country according to The World Bank. So, the weight of the debt burden, that is important in Cameroon. For 20, 30 years we did not make an investment in infrastructure, now we have an opportunity to invest in infrastructure but, once again, we are told not to do it. In the meantime, we have had security problems, we had to borrow money, or at least to dedicate expenditure to security matters. So what is your opinion regarding the Cameroon situation?
MS. SAYEH: The evaluation of a country's debt status in the form of the debt sustainability analysis is a joint exercise that is done by The World Bank and the IMF staff together. And it is true that in course of the last update of the debt sustainability analysis Cameroon’s status has been changed from moderate risk of debt distress to high risk of debt distress reflecting in fact developments contrary to what you suggested has been going on. Cameroon in fact has been pursuing a robust investment program, investments in infrastructure for the most part, and part of the financing of that going into infrastructure especially last year through non-concessional borrowing. The most recent example being the sovereign bond that was issued by Cameroon last year at very elevated rates. Certainly that has added to the debt sustainability concerns and Cameroon is now rated at high risk of debt distress, meaning that our advice to Cameroon has been to make sure that its investment program is streamlined to contain the highest priority investments that they are financing. This is increasingly and mostly with a concessional financing - with a view to making it possible to sustain those levels of debt going forward.
QUESTIONER: Africa is in a tricky situation and certainly the IMF projections for growth reflect that. But I wanted to understand from you what policy recommendations you might have for South Africa and whether there has been any discussions recently about borrowing from the IMF.
MS. SAYEH: Thank you for that question on South Africa. South Africa is indeed in a difficult place, hit by commodity price shocks, not oil prices, but of course other commodities that it exports. South Africa, of course as an oil importer benefits from the declining oil prices, but it is as a commodity exporter of other commodities suffering from declines in prices, platinum and others and also from the rebalancing in China because this is -- South Africa’s most important trading partner and that has also had an impact. South Africa’s reliance on external financing is also a feature that has increased difficulties. In addition to the domestic difficulties that South Africa has seen in recent years including on the energy side and the problems of electricity that has impeded growth in the manufacturing sector, and of course the large agenda of structural reforms that still needs to be addressed. As you say, growth is not looking very good at all for South Africa on the basis of our most recent assessment. We think that South Africa may do about 0.6 percent in growth this year, the lowest we’ve seen for many, many years. To be able to address that the South Africans have actually been pursuing a mix of macro policies that have really tried to adjust to this difficult environment. The budget that was put forward we think does a good job in balancing the needs to make sure that macro-stability prevails, but at the same time also trying to mitigate the impact on growth.
Whether that budget is implemented in a way that really leads to the results envisaged, I think it will certainly depend on whether it’s accompanied also by structural measures that are very important both in terms of the product market competition that needs to be improved, more inclusive labor market policies and of course supporting more education and skills building that is needed to make South Africa a more competitive economy as well. Quite a bit of work still needs to be done there, but the authorities are working, we think, hard to deal with them. What needs to be worked on also is the level of uncertainty that has developed recently about South Africa in light of - as you know back in December - a very quick replacement of Finance Minister Nene and the changes there and the uncertainties that it created. Subsequently of course the appointment of Minister Gordhan, but there is a level of uncertainty that the markets are still feeling that I know the authorities are working to address in a way that confirms the authorities’ intention to move forward. A number of issues, some of them non-economic need to be dealt with.
QUESTIONER: I would like to find out if borrowing externally will be the best option for Zambia to meet against the economic shocks arising from the falling corporate prices and what are the possibilities of Zambia not falling into another death trap if we continue borrowing?
MS. SAYEH: I hear your concern in that question and we certainly have our own concerns about borrowing and too much borrowing. Zambia of course borrowed on the issued sovereign bonds at high rates. The proceeds of those bonds were used to finance some infrastructure, but also to cover the regular budget deficit including current expenditure and in light of the expense of that financing that was certainly not the best use of very expensive financing. And our advice to the Zambians has been to really quickly work to put in place measures to reign in the huge fiscal deficit that is underpinning that borrowing and to adjust its spending pattern which is heavily driven also by current spending including the wage bill and to really work towards containing the deficit with a view to reducing its borrowing requirements. That is the only way to reduce the borrowing requirements – to contain the deficit and to make sure that the deficit that you may need to carry forward for development purposes are used to the best possible needs with high quality investments.
QUESTIONER: My question is what responsibility the banks have to disclose loans like this when they know there is IMF borrowing, if any. And also, Credit Suisse and DTB, obviously they knew about these loans and they were not disclosed to the IMF. And then also the question is why give a loan in the first place after the initial disclose that the money was used for gunships instead of tuna boats in the initial transaction?
MS. SAYEH: I think that’s a question for the banks that you may need to put to them in terms of how they make their own investment and lending decisions. Certainly they would need to evaluate whether that lending and investment makes sense from their own perspective of profit making. And I’m not in a position to answer why they did what they did. I think you need to ask them about that. Certainly we would have wished that we would have heard about these loans earlier, but the responsibility for having told us is really squarely with the Mozambicans in our partnership with them in the form of the program that we had with them and as a member of our institution.
QUESTIONER: There's no doubt in the fact that we can always talk about Nigeria, because of not only its size but, you know, the strategic status the country has -- and, of course, by extension, the world. And from your presentation and the answers you provided to a few questions, it looks like you had interactions, of course, with Nigerian government. And are you saying that you're pleased with what have you heard? Because I think from what you said, you mentioned that there's a need for policy reset. So, if you are talking about policy reset -- and, of course, from various interactions you've had with Nigerian government officials -- does Nigeria need to do a policy reset? And if not, what are they doing now? If you want to assess it, what's your hope in the next two years? MS. SAYEH: I think I made it clear in my response that, indeed, we were certainly pleased with some measures taken by Nigeria. And I refer to the focus on governance, which has been a big problem from Nigeria in the past -- and including in the oil sector and the need to improve governance there. And some efforts in the way of trying to make sure that nonoil revenues start to expand through tax administration strengthening -- that is a focus of the current authorities. So, I mentioned some things that we're very pleased to see get initiated in Nigeria. But I also mentioned a number of issues that needed to be addressed. And in that sense, certainly, a policy reset would be our recommendation to Nigerians, as we've laid out quite clearly in the Article IV report that goes into great depth about measures and the package on the fiscal side that the Nigerians need to consider, in addition to its monetary policy issues, financial sectors issues, exchange rates -- so certainly, a number of things for a coherent macroeconomic policy package to address a huge shock.
MR. KANYEGIRIRE: We have literally about four minutes left. I'll take one quick question from the gentlemen at the back.
QUESTIONER: What is the general growth rate for sub-Saharan Africa in 2016?
MS. SAYEH: Okay, I did say in my introductory statement that in 2015, our estimate of growth was only 3.5 percent, and that we expected growth will be only some 3 percent this year, 2016.
MR. KANYEGIRIRE: Thank you very much. Sorry, but we have to wrap it up. We've reached our mark. Thank you very much, Antoinette, for your remarks. And thanks for your questions.
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