The International Monetary Fund on Thursday upgraded its growth forecast for sub-Saharan Africa to 4.5 percent this year, with the organization’s regional director welcoming countries’ resilience in the face of a succession of crises, including the US-Iran war.
The Fund upgraded its growth forecast for the region by 0.2 percentage points from its last World Economic Outlook update in April, noting that global energy supply adjustments and private sector adaptation helped cushion the shock of the war’s effect.
Since late February global oil, gas and fertilizer prices have skyrocketed as a result of the US war on Iran, with several African countries particularly exposed to the crisis as they are net importers of those commodities.
Still, IMF Africa Director Zeine Zeidane told AFP that even though growth was resilient, it needed to increase to keep pace with other regions.
“Our view is that per capita growth today remains quite weak,” he told AFP at the Fund’s headquarters in Washington.
“It would take the region nearly 50 years to double its income. By comparison, Southeast Asia managed to double its income per capita in 15 years.”
The former Mauritanian prime minister noted, however, that countries had broadly been able to maintain current growth rates — even through multiple crises — without jeopardizing their public finances, with debt-to-GDP ratios broadly declining in most countries.
This was due to “a genuine effort at fiscal consolidation,” notably through “better mobilization of domestic revenue,” he said.
Debt servicing still represents a significant share of public spending — 12 percent of GDP on average, and up to a third in some countries, Zeidane said.
“Financing needs continue to absorb a large share of credit available in the economy,” at the expense of other priorities more essential to development.
“Instead of having banks that finance economic activity, we find ourselves in a situation where governments’ financing needs are crowding out the private sector,” he lamented.
Zeidane said an absence of institutional investors, including corporations and pension funds, was a serious issue for the development of capital markets.
“There is real work to be done to mobilize domestic financing,” he said.
– Climate, health risks –
While African economies have largely managed to deal with global shocks, other threats will likely have a more acute effect on the continent.
The El Nino climate phenomenon, in particular, is expected to have a serious impact on African economies.
El Nino is a natural phenomenon recurring every two to seven years due to the warming of sea surfaces, bringing worldwide changes in winds, pressure and rainfall patterns.
Global forecasters predict this year’s event will peak at an intensity never observed in the modern era, compounding the effects of man-made climate change, which drives extreme weather patterns.
“We are very concerned because it could have a major effect on agricultural production but also on electricity generation, particularly in southern Africa,” Zeidane said.
He added that the IMF was working on models to predict the potential impact on the region.
The southern tip of the continent could face a particularly intense drought cycle, while in other parts of Africa, especially in the east, flooding could threaten agricultural production.
“A shock like that can have a major impact on food prices, which make up a large share of the consumption basket in Africa,” he warned.
Another source of concern is the health situation in the Democratic Republic of Congo, where an Ebola outbreak is “difficult to contain” and represents “a particular shock for Congo but also for its neighbors.”
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