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Regional Economic Outlook Sub-Saharan Africa By: Andrew Berg and Paulo Drummond African Department International Monetary Fund Main Points 1. In 2007 sub-Saharan Africa experienced one of its highest growth rates in decades. 2. The region’s economic prospects remain robust: GDP growth is expected at 6½ percent; inflation to remain contained at 8½ percent. 3. Compared to the 1990s, the region is better placed to withstand a worsening of the global environment. Main Points (cont’d) 4. Risks to the outlook are tilted to the downside. 5. Rising commodities prices pose immediate challenges. 6. Main medium-term challenge: accelerate growth and reduce poverty to achieve the MDGs A Comparison of Growth Sub-Saharan Africa growth is robust. 8 7 Real GDP Growth (Percent) Sub-Saharan Africa World Developing countries 6 5 4 3 2 1 0 1970s 1980s 1990s 2000–07 Sources: IMF, World Economic Outlook; and IMF, African Department database. The Economic Expansion Cuts Across Countries Growth in SSA 10 8 Real GDP Growth (Percent) 6 4 2 0 SSA Oil-exporting countries Middle-income countries Low-income countries Fragile countries -2 -4 2000 2001 2002 2003 2004 2005 2006 Source: IMF, World Economic Outlook; and IMF African Department database. 2007 Oil Prices and GDP Growth in Sub-Saharan Africa 18 (Annual percent change) (U.S.$/barrel) 16 Oil exporters (left scale) Oil importers (left scale) Oil price (right scale) 14 100 80 12 10 60 8 40 6 4 20 2 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sources: IMF, World Economic Outlook; and IMF, African Department database. Growth Prospects in Sub-Saharan Africa Growth is projected to remain robust. 8 Real GDP Growth (Percent) 7 6 5 50 percent 4 70 percent 90 percent 3 2 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sources: IMF, World Economic Outlook; and IMF, African Department database. Rising Commodity Prices Pose Challenges 220 World Oil and Food Prices (Index 2005QIV=100) (US$/barrel) 200 Metals (Left scale) 180 100 90 80 160 70 1 Oil (Right scale) 140 Food (Left scale) 120 60 100 50 80 40 60 30 40 20 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2003 2004 2005 2006 2007 2008 2009 Source: IMF, World Economic Outlook. 1 Includes Cereal, Vegetable Oils, Meat, Seafood, Sugar, Bananas, and Oranges. Prices in US dollars. Pass-through of Oil Prices Sub-Saharan Africa: Pass-Through of Higher Gasoline, Kerosene, and Diesel Prices, 2003-07 Diesel (Ratio of change in the retail price to change in import price) Gasoline Kerosene Oil-exporting countries Oil-importing countries 0.0 0.2 0.4 0.6 0.8 Source: IMF, country desk data. 1.0 1.2 1.4 1.6 Food Price Inflation 14 Food Price Inflation in Sub-Saharan Africa (y-o-y percent change) Number of countries 12 Feb-08 Dec-07 10 Dec-06 8 6 4 2 0 [<1] [1,5] [5,10] [10,15] Food price inflation [15,20] [>20] Spikes in oil and food prices are building inflationary pressures Sub-Saharan Africa: 12-month CPI Inflation1 11 (Percent) 10 9 8 7 Source: IMF, International Financial Statistics. 1 The February 2008 figure includes available data for 12 countries (67 percent of regional PPP GDP). Jan-08 Oct-07 Jul-07 Apr-07 Jan-07 Oct-06 Jul-06 Apr-06 Jan-06 Oct-05 Jul-05 Apr-05 5 Jan-05 6 Terms of Trade in Sub-Saharan Africa Terms of trade have improved for oil exporters. 325 300 (Index, 1997=100) 275 Sub-Saharan Africa Oil-exporting countries Middle-income countries Low-income countries Fragile countries 250 225 200 175 150 125 100 75 1997 1999 2001 2003 2005 2007 08 Sources: IMF, World Economic Outlook; and IMF, African Department database. Food Price Increases: What Can and Should Be Done? Policy responses depend on country circumstances: Temporary and targeted subsidies can help the most vulnerable. For permanent shocks, countries should aim to put in place an efficient social safety net. But second- best solutions may be needed. Countries should seize the opportunity to encourage agricultural production. Direct price and export controls may have unintended negative consequences. In Response to Higher Food and Fuel Prices, the Fund: Is ready to provide financial support in those countries where price shocks are having a significant BoP impact. Stands ready to provide policy advice: fiscal policy implications, effects on inflation, exchange rate management. Supports increased aid to help the most vulnerable groups. 35 0 Eritrea Congo, Dem. Rep. of Guinea Central African Rep. Ethiopia Côte d'Ivoire Zambia Gabon South Africa Madagascar Kenya Namibia Niger Cameroon WAEMU Sierra Leone Burundi Senegal Mali Tanzania CEMAC Rwanda Angola Mauritius Uganda Cape Verde Swaziland Congo, Republic of Equatorial Guinea Nigeria Sub-Saharan Africa: Reserve Coverage for Terms of Trade Shocks, 2007 45 (Reserves to GDP, 75 percent of terms of trade shocks) 40 Reserves (Percent of GDP) 30 Bottom 25th percentile of terms of trade shock 25 20 15 10 5 Source: IMF, African Department database. Total Government Debt in Sub-Saharan Africa (Central Government, Percent of GDP) 100 90 75th percentile Sub-Saharan Africa median 80 1 70 Median MDRI countries 60 50 40 30 20 2000 25th percentile 2001 2002 1 2003 2004 2005 2006 2007 Source: IMF, World Economic Outlook; and IMF African Department database. 1 The band is calculated based on 88 developing countries. The lower and upper limits are the 25th and 75th percentiles. Central Government Social Spending in Sub-Saharan Africa Social spending has been sustained across countries. 10 (Health and education spending, percent of GDP) 8 2000–03 2004–07 6 4 2 0 Oil-exporting countries Middle-income countries Low-income countries Fragile countries Sources: IMF, World Economic Outlook; and IMF African Department database. Sub-Saharan Africa: Doing Business, 2007 0 20 Mauritius 40 South Africa Namibia Botswana (Ranking, 2007) 60 Kenya 80 Seychelles Ghana Ethiopia 100 Nigeria Uganda 120 140 160 180 Malawi Swaziland Lesotho Tanzania Sierra Leone Zambia Gambia Mozambique Gabon Madagascar Rwanda Liberia Congo, Rep. Guinea-Bissau 200 15 10 5 0 -5 (Change in ranking, 2006–07) Source: World Bank, Doing Business Indicators, 2008. -10 -15 -20 -25 Sub-Saharan Africa: Governance Ranking, 2000–06 40 2000 35 2006 30 25 20 15 10 5 0 Voice and accountability Political stability Government effectiveness Regulatory quality Rule of law Source: World Bank Institute, World Governance Indicators, 2000–06. Control of corruption Analytical Chapters The REO also has three analytical chapters Many African economies are adapting their monetary frameworks to preserve hard-won stabilization gains, anchor expectations, and adapt to shocks (Chapter 2). Private capital flows have overtaken official aid as the main source of external finance for sub-Saharan Africa (Chapter 3). The power sector in sub-Saharan Africa requires urgent attention (Chapter 4). THE END