Via IMF (Den Internationale Valutafond)

Transcript of October 2019 African Department Press Briefing

October 19, 2019





Director, African Department, IMF



Communications Officer, IMF



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          MR. SELASSIE:  Good afternoon everybody.  Thank you again for joining us today for the launch of the Regional Economic Outlook for Sub-Saharan Africa.

          Before I take your questions, I will briefly lay out recent economic developments in the region and the policies we feel are needed to facilitate stronger growth.

          Growth in Sub-Saharan Africa is expected to pick up, though at a slower rate than previously envisioned.  For this year, we are projecting growth at around the 3.2 percent mark, rising to 3.6 percent in 2020.  Relative to April, we have seen growth revised down for about two-thirds of countries this year, albeit by a modest 0.3 percentage points for the region as a whole. 

          By and large, this revision reflects the more challenging external environment and some countries’ specific circumstances.  For example, policy uncertainties are holding back investment in some of the larger economies in the region.  Furthermore, I would like to stress that growth prospects continue to be quite varied across Sub-Saharan Africa.  In particular, non-resource intensive countries are expected to grow at about 6 percent, almost three times faster than the growth rates that we are seeing in the more resource intensive countries, reflecting this 24 or so non-resource intensive countries, home to about a half a billion people, will see per capita income rising markedly faster than the rest of the world.

          In commodity reliant or resource intensive countries, however, growth is at around the 2.5 percent mark.  For these 21 countries, in per capita terms, growth remains lower than much of the rest of the world.

          In addition to the outlook I just outlined, there are some downside risks that we see.  On the external front, this risk relates to rising protectionism, potential rising risk premiums for international markets, and faster than anticipated slowdown in trading partners, like China, the Euro area, should it materialize.

          And then other risks are related to failure to implement fiscal policies as envisioned to help stabilize debt levels.

          Against this backdrop, a three-pronged strategy can help reduce risks and promote sustained and inclusive growth.  First, the near-term policy mix in countries needs to be carefully calibrated.  In general, fiscal space is limited in countries, thus the room for supporting growth in the face of excellent headwinds remains mainly on the monetary policy side, particularly for countries where inflation remains below targets and growth is also below potential. 

          Second, countries should continue to build resilience through economic shocks, in some cases increasingly frequent weather-related disasters, and heightened security challenges in other parts of the region also.  This of course requires countries to continue to strike a balance between investment needs and avoiding debt sustainability problems, making sure that public sector, public fiscal management remains effective, avoiding the buildup of domestic arrears and other challenges that we’ve seen, something that we covered in our Regional Economic Outlook, and importantly, continuing the efforts to diversify economies to reduce reliance on commodity exports.

          The third area where we feel some attention is needed is to of course continue to make sure that growth remains labor intensive to be able to create jobs for the millions of people that are entering the labor market each year.  Opportunities for reform include, measures to facilitate the implementation of the AFCFTA now that it has been ratified by most countries in the region. 

          Another area where some attention is needed is facilitating competition between firms and enterprises in the region.  Again, some analytical work we’ve done this time around in our Regional Economic Outlook shows the significant potential there is to facilitate competition that raises growth, improves welfare, by promoting faster competition between firms.

          Before I end, and we open the floor for questions I would like to stress that, we remain of the view that Sub-Saharan Africa remains a region of tremendous potential.  And while the global environment has become somewhat uncertain, there is much that countries in the region can do to boost growth and resilience to external shocks.

          Finally, I want to also put a forthcoming conference on your agenda.  Together with the government of Senegal, the Fund will be hosting a conference on Sustainable Development, Sustainable Debt, on December 2nd in Dakar.  The objective of the conference is to identify policy proposals and approaches to address how best countries can strike a balance between addressing development needs and avoiding debt vulnerabilities.  A lot of the analysis that I spoke about is in our Regional Economic Outlook, which has just been published today.

          Thank you very much.


          QUESTIONER:  I would want you to speak about the AFCFTA.  Now that countries have signed, what policy framework do you see member nations coming up with to ensure that the desired target is met?  And with Nigeria closing her borders, her land borders to neighbors, do you see it in any way impacting the nation’s neighboring countries.

          I also want you to speak about inclusion that the IMF has been talking about, female inclusion, the clamor for gender balance, how do you perceive it to be playing out, especially in the workplace in Sub-Saharan Africa.

          MR. SELASSIE:  On the AFCFTA, this is one of the most exciting policy developments across the region in recent months.  We covered this extensively in our April Regional Economic Outlook, we did quite a bit of analytical work in there.  What it showed is that there is tremendous potential from the initiative that can help facilitate higher economic growth.  One of the things about inter-Africa trade is that when countries are trading with the rest of the world, we tend to export natural resource commodities.  So Nigeria exports oil to the rest of the world. 

    But trade between countries tends to be that of manufactured, more processed goods.  Partly of course this is because most countries produce natural resources so they don’t trade that with each other but they export it.  So, it’s a kind of trade that we want to facilitate, and the AFCFTA I think will do that subject to tariffs, of course, being lowered, which is what the agreement deals with.  But also not other barriers to trade being opened up. 

    So one is like non-tariff barriers, even without tariffs, there tends to be barriers.  Other things that hamper trade is infrastructure.  So that also needs to be addressed.  So again, it is a major initiative, important, but now the hard task of making sure that it is implemented is going to be important to facilitate the trade that we need to see between countries in the region.

     On the border closure in Nigeria which has been impacting Benin and Niger, our understanding is that the border has been closed, reflecting concerns about smuggling that’s been taking place, illegal trade, not the legal trade that you want to facilitate.  So we’re very hopeful that discussions will resolve the challenges that this illegal trade is fostering.  To be sure if the border closure was to be sustained for a long time it’s going to definitely have an impact on Benin and Niger, which rely quite extensively on their big brother next door.  So, we hope that there will be a resolution to that.  On gender balance, promoting that, I think it’s fair to say over the last several years, we have increased our focus, our attention to inequality — gender and inequality in the region in particular.

          In terms of policy intervention that is needed, unfortunately, we still see some policies that are in place that hamper the full participation of women in the workforce; women’s ability to inherit land; who have access to financial services.  So, I think the first policy priority really is to make sure there are no policy induced barriers to women’s participation in economic life to a full extent.  Once those have been eliminated, or as those are being eliminated, I think there are other more traditional type barriers that need to be addressed. So, addressing those will be important.

          And then third, I think consideration will need to be given to more positive interventions to make sure that women’s participation in economic life and political life remains as strong as it is.  As our managing director points out, you cannot have a vibrant economy with half the workforce being kept out, or not participating fully in the economic life of our countries.  So, there is not just an advanced country major market issue, but something that’s, if anything, more prevalent in our region.  So, again, this is something much attention is needed.

          QUESTIONER:  I had a question about the trading environment for the countries in Sub-Saharan Africa.  Obviously, growth has been slow throughout the world because the U.S./China trade war, but could you go into some of the specific effects that it’s had on countries that are trying to break into global supply chains and to get an upgrade of their manufacturing.  Have they been able to take on some of the production that’s left China, or is this more of an overall negative for those countries, and what are the factors? 

          MR. SELASSIE:  I think it’s important to disentangle modern medium-term versus the short, the conjuncture on this trade issue.  So, I think the first point I want to make is that Africa has not been immune to the slowdown in global trade volumes that we’ve seen over the last year or so.  Trade volume globally has declined and what we have seen is some softness in the exports in the region to the rest of the world. 

          So, that is something that has happened at the same time that global trade has slowed down and it’s something that is a source of concern.  And, in fact, it has contributed somewhat to the lower growth that we have seen, the softness in growth outcomes that we are expecting this year.  So, on the conjecture, the region has been impacted somewhat will be to a lesser degree than elsewhere.

          On the more medium-term story about shifting of low-skill manufacturing; more level intensive manufacturing type jobs to the region, we have seen some of that happening.  I think the most notable case, perhaps is Ethiopia where we’ve seen some effort, concerted effort by the government to try and attract these jobs to the region.  In other coastal countries along the eastern seaboard in particular, we have seen some of that.  I think going forward, it’s almost inevitable that this will continue to happen as China, Vietnam continue to move up the technology ladder.  I think the next place where there is abundant supply of labor, where labor remains relatively cheap is in Sub-Saharan Africa.  So, that migration we have begun to see, but I think it’s the early days yet. 

          So, I think there’s two forces at work.  On the one hand, what will determine how quickly this happens?  On the one hand, how quickly the Asian countries move up the technology ladder and then on the other hand, how rapidly countries are able to attract capital into these kinds of areas.  So, it will be interesting to see how these dynamics play out, but at the moment, we are still, in the early stages.

          QUESTIONER:  The IMF has been a critic of what they call a very high debt profile between African nations and China.  And for us, it’s — the only way we could develop our infrastructure will be true for indirect investment.  Will the IMF come up with something that will make the loans from China less attractive to African nations?

          And secondly, on Nigeria, the present Administration has put in place so much economic policies to make things better, but unfortunately, the growth seems to be so slow.  How will IMF intervene to change Nigeria’s fortune? 

          MR. SELASSIE:  First, I don’t agree that IMF has been a critic of China.  Just to be very precise about this, China has been a very important development partner for many countries in Sub-Saharan Africa.  And that’s our headline assessment.  Now, are there some countries that have borrowed extensively, and this is not just from China, but from all other sources of financing, either through the issues of Eurobonds, from domestic markets, or other sources of capital?  Yes, there are countries that have borrowed beyond what they can quickly repay.  But it’s important that we get this story straight, that China has been a very important partner for many countries and remains so. 

          It really is more about the overall debt level and even, not just about debt, but say it’s two other things.  One is once you’ve borrowed money to invest in infrastructure, in health, in education, being able to capture the rate of return on that investment so that the debt can be serviced.  So, what use you put the debt to; how effective the investment progress that you’re undertaking really is the important part of the equation.

          And then second, always to try and strike this balance between addressing the tremendous development needs countries have and avoiding debt becoming unsustainable.  So, that is our concern and those are the issues which we discuss with countries.

          What can the IMF do?  We work with the 45 countries of Sub-Saharan African that’s covered by my department through a range of modalities.  In some countries we have programs where we provide financing when countries want it.  We, of course, provide policy advice to all countries and capacity development also in specific areas, including on debt management as countries request.  So, we try and help countries to strike this balance as much as possible and providing the access to come and work with them.

          On slow growth in Nigeria, it has been like, for the government has initiated the ARGP which I think has outlined many of the weaknesses, many of the constraints to growth in Nigeria very nicely.  I think what’s needed is really to implement that to the fullest extent and we look forward to the new Administration doing that.  I think on the fiscal policy area, for example, the budgetary area, it is going to be really important that the government increases non-tax revenues to be able to invest in the infrastructure the country needs in building, expanding university education, expanding health service coverage.  So, governments need a lot of resources to facilitate a lot of the investment that the government needs to make.

          There’s also scope for reforms to make sure that you have a business environment that facilitates more private investments.  And we discuss with the governments in trying to provide policy advice as much as we can.

          QUESTIONER:  The ECOWAS commission had outlined their intention to float a common currency among the ECOWAS commission.  And they came out with a template of what the currency would look like.  And we’re hoping, of course, that will take effect by shortest possible time. 

          What will be impact of this single currency in the region.  And secondly, there’s been this outcry of issues concerning insecurity in the region.  Talking about xenophobic attacks in some of the countries and how does this affect, trade treaties between the countries and how can it be surmounted. 

          MR. SELASSIE:  On the plans for a new ECOWAS currency, leaders and the ECOWAS commission have done the right thing in laying out very clearly what the preconditions that needs to be put in place for are for the creation of a currency.  So, those preconditions, of course, already include convergence criteria and making sure that you have some real convergence, economic convergence before you move to creating a single currency.  And, it’s important to follow the steps and the conditions that have been laid out there as countries move toward creation of this currency.  So, we, look forward to seeing how that is being implemented in the coming months. 

          On the xenophobic attacks that have taken place in some countries and unfortunately have resulted in the loss of so much life, I think it’s a big challenge what has been taking place.  I don’t know what to say other than that making sure that remains contained.  Much less spilling over into bigger disputes is going to be really, really, important.  There’s a big element which is criminal and so I hope, we’re policing and better understanding between people will tackle that.

     QUESTIONER:  Still on the free trade continental agreement.  I wanted to react to worries that the big economies, Nigeria, South Africa, Ghana and Ethiopia and the rest will may wipe out economies in other countries.  In terms of stronger manufacturing and exportation of goods. 

          And I would like you to tell us the impact of climate change in the African economies.  We already seen some of the effect around the Lake Chad basin where you have millions of people affected and the risk of starvation.  And do you think that Africa is ready for the green economy. 

          MR. SELASSIE:  On the first question about the possibility that the bigger economies dominating markets in the region, of course this can be a problem but the smaller economies have opened up their markets to China, to European countries and the like. So, even assuming that Nigeria or Ethiopia will dominate their sub-region, is it preferable to be dominated by China rather than Ethiopia and Nigeria, I don’t know. 

          When you have structural change that is dislocation there can be losses in some sectors.  The key thing is whether it’s opening up to China, to Europe versus to Nigeria.  The key really is about making sure that you have policies in place to support sectors that may be dislocated. 

           And that in general more competition, other things equal tends to be a bit better than having this situation where you’re not trading with each other.  Again, it’s not to minimize the potential source of dislocation, but I think there are steps that can be taken to address potential areas that are dislocated.

          Climate change is of course, something that we think about all the time.  In our work, we see the issue both in a short term sense, but also more medium term perspective.  In the near term, how it affects our work, the number of countries that are being impacted by climatic events and natural disasters which seem to be getting a bit more frequent.  I don’t know if it’s simply been that we’re recording and being more aware of them.

          So, most recent one, of course, is cyclone Idai followed quickly by cyclone Kenneth.  We are trying to provide support to countries as they are being impacted by these shocks as quickly as we possibly can.  So, that’s one way in which we’re dealing with the somewhat uncertain climate.  Right now, we have a drought in Southern Africa.  We’re trying to assess the impact of that in countries like Zimbabwe, Zambia and giving policy advice and support there. 

          And then there’s the more medium-term issue, more medium-term challenges arising from things like, the desertification that is happening in places across the Sahel.  People are attributing some of the population’s pressures, the tensions that you’re seeing to population movements induced by climate change, trying to understand that.  How can government policies, be more climate resilient?  How can investment be more climate resilient.  We are trying to think through these things and support governments as much as we are able to.

     Questioner: Health is a major part of the socio-welfare that you mentioned.  But at the same time, within the past five years, sub-Saharan African countries have experienced Ebola outbreaks across five major countries, including the current outbreak in DRC. 

          In 2014 and 2015, you were in charge of helping to give funds to Liberia to help them deal with the Ebola outbreak.  What is the IMF’s recommendation to African countries in terms of policy and investment to address this particular sector.  To ensure that when there is an outbreak or any major pandemic in Africa, they can address this issue.  Because the healthcare sectors are not getting adequate investment and policies. 

          MR. SELASSIE:  We’re not health specialists nor kind of work directly with the health sector. But we, of course, work with countries to try and provide, to make sure that they have enough resources so that they can invest in health, education, infrastructure that they do. We’ve had Ebola outbreaks in places like Uganda also.  When the outbreak happened in Guinea, Liberia and Sierra Leone, there was also some spread into the Nigeria.  Though countries which had better health infrastructures were able to deal with it quite quickly and address it and squash it very quickly.

          So, fundamentally the way we can make our economies resilient to pandemics like that really is by generally upgrading the health quality, the health service provision.  And improving state capacity in dealing with incidents like this.  So, the primary way we do help countries really is by making sure that they have enough resources from taxes, from loans to address better health and development objectives.

          QUESTIONER:  You spoke a little bit about how trade tensions were creating a challenging global environment for economies in Africa.  Could you speak a little bit about the policies that can be used to kind of shelter economies from these external headwinds a little bit more.

MR. SELASSI:  So, as I mentioned earlier in the share of countries having the scope for using more supportive fiscal policy stance at the moment is constrained, because the levels have been going up, and there’s a need a little bit more to focus on stabilizing debt levels.  But that’s the thrust of policies, and that should be sustained.

So, we tend to see more space on the monetary policy side, we’ve seen inflation rates generally trending down across the regions, in some cases it’s even below targets.  We’ve also seen more stability in the exchange rate rates, so we’ve seen more space on the monetary policy side.

If the downside risks we talked about earlier, were to emerge however, we see a much more pronounced global slowdown, then I think there will be a little bit more scope to reconsider the calibration of fiscal policy, so maybe delaying by a year or two, the climate adjustments.  So, over the medium term you still get debt to be coming down, but not immediately.

But under the baseline, under the current projections that we have we see more space on the monetary policy side rather than fiscal.

QUESTIONER:  The IMF is projecting 11.7 inflation rates by 2020.  What are the drivers of this inflationary rate?  And then what are your recommendations on how to control it? 

MR. SELASSI:  On inflation in Nigeria, it’s a mixture of a range of factors which are keeping inflation at the level it is despite growth being low.  This of course includes countries still adjusting to the impact of lower commodity prices, and that adjustment was more gradual.  It wasn’t immediate and really started in earnest the last couple of years.

Some of that adjustment to the very high inflation that you saw on the exchange rate was adjusted, is still playing out.  I understand also there’s been some shocks related to food prices, and the like.  Just keeping on what the Central Bank has been doing over the last couple of years, continuing to bear down on inflation, to make sure that it can gradually decline, is the way to go.

We don’t think that monetary policy is particularly badly calibrated, far from it.  So, giving time for deflation to decelerate is what’s needed.

QUESTIONER:  You mentioned the implementation of this Free Trade Agreement has the potential to boost medium-term economic growth for the region.

Has the IMF done calculations to see the extent to which it can boost growth?  If the baseline is a set number, how much can it add?

MR. SELASSI:  We have actually — one of the analytical chapters in the April WEO, was very much on the AFCFTA, and we have a lot of outreach material related to that online also.  So, I invite you to look at that. Our estimates was that growth — trade, intra-Africa trade would be increased by at least — close to, between 16 and 20 percent, or so, as a result of the AFCFTA.

But once you factor in other factors it could be higher still.  But again, beyond the volume, the increase in trade, what’s also really interesting is this other element of the trade being in manufactured goods.  A lot of debate and discussion in the region is about how can we facilitate more diversification, higher value-added goods being traded?

That’s really also the other element that’s exciting beyond just the increase in numbers.

QUESTIONER: I wanted to ask about how the IMF looks to Mozambican economy knowing that two years ago, or three years ago, that was hidden debts that now are being taken to trial.  There is more than $2 billion in the Mozambican debt that were hidden from the IMF, and that stopped the financial program that IMF had.  So, how will the IMF bring new financial help to Mozambique?

And with the hidden debts, the Cabo Verdean Government also are saying this month that there will be hidden debts of 65 million – do you know something about that?

MR. SELASSI:  On Mozambique, when the hidden debts were discovered, we indicated that three things needed to be done for us to engage.  First and foremost, there was a need for an explanation, an audit to try and understand how this debt came about, and to what end the resources that were borrowed were used.

So, there was an audit, done by a company with the support of the Portuguese Government – so that process has played out.  And, also, it’s good to see more recently the prosecutions that have resulted as a result of the investigations that the Portuguese authorities and other jurisdictions have been undertaking.

So, that was one big — the audits, and trying to understand what happened, and the transparency was particularly the important part that we were concerned about. 

The second element, as we noted was, as a result of those hidden debts, debt was an unsustainable situation, so there needed to be a way to make sure that debt was brought about to sustainable levels, and then the third element was agreeing on a program that we can support and polices that we can support.

Progress has been made in all those three areas, or in the first two areas, there is no outstanding requests for program engagement with the IMF at the moment, so the country has been going through an election as you know, but if there is a request for a medium-term program, we are happy to look at that subject, to those considerations that I laid out.

Now, of course, earlier this year the country was hit by Cyclone Idai, to such devastating effects in the northern parts of the country, and we moved forward quickly to try to provide some support to the country in that context.  So we disbursed some resources to help alleviate the impact of that.  So, our engagement, by way of providing this emergency support, and also policy advice has continued.

On Cabo Verde, I’m not aware of the transaction that you mentioned.  I will try and find out about that.

QUESTIONER:  Over the period you’ve seen some countries record trade surpluses.  But those surpluses have not transformed into current accounts of those countries, mainly due to capital flights that we’ve seen.

Will you recommend that countries convert their domestic assets in to foreign reserves, particularly for some African countries?  And then again, Ghana embarked on a very costly financial sector reform about two years ago, which nearly cost the taxpayer about 12 billion Ghana cedis and resulted in the collapse of about seven banks.

What is the implication of not embarking on such a reform, particularly considering the number of job losses that has come with it? 

MR. SELASSI:  There is a discrepancy between trade surpluses and reserves not going up enough.  I mean it can vary from country to country.

          On financial sector clean up — the cost of cleanup in Ghana, it underscores why we, as an institution, put so much stress on making sure banks are supervised, regulated as well as possibly can be done.  Given that financial sectors are deepening, the importance of upgrading banking supervision, banking regulation is going to be really, really important to avoid exactly the kind of situation that you explained.

          The alternative to not cleaning up the banking sector is an even bigger cost to the budget and to the economy as disruption can be caused.  That’s why a central lesson — a really important takeaway — is the importance of real-time regulation to make sure banks are adhering to all of the requirements to practice safe banking.  Thanks.

     QUESTIONER:  My question borders on poverty in Sub-Saharan Africa. The numbers in the area of poverty is quite frightening in Sub-Saharan Africa, and this has remained a concern with government initiating policies to ensure that they’ll be able to lift a number of citizens out of that.  One instance is that of Nigeria where they have a 10-year projection to lift about 100 million people out of the extreme poverty.

          And yet, the Central Bank of Nigeria is playing a very critical role through interventions, and there are other intervention programs by government.  What programs would you recommend that could fast track the realization of this very projection. 

          MR. SELASSIE:  One of the things that strikes me about Nigeria is just the variation in both economic outcomes, but also development, and social outcomes across this very, very large country.  So, you have, in part of the country very, very elevated levels of poverty; very elevated levels of infant mortality, maternal mortality — really important indicators of wellbeing — are very high in some parts of the country; and in other parts of the country are comparatively very low.  So, there’s this big variation in poverty outcomes, economic outcomes, in your country.

          So, a really important focus is to try and identify those areas where these outcomes are really weak and, perhaps, region specific, intervention is going to be needed.  And the other one, that’s growth – overall growth in the country as a whole should be much higher than it is at the moment. 

          Continuing on the diversification agenda would be really important in this regard; reducing reliance on oil, which tends to dominate the country; having a business environment that facilitates investments, across the country; more policy certainty will all be important; and, again — we must sound like a broke record when it comes to Nigeria.  The key way in which, of course, the government can address poverty, can address that challenge is by investing more in infrastructure, in health, in education — and that requires resources; and that can only come from higher non-tax revenues, which remain very low at 7/8 percent in the country.

          So, if there is, a single policy lever that the government could address over the next couple of years, it is this non-tax revenue.  But, this is not lost on policymakers and the 2020 finance bill is seeking to address that. 


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