Africa: Transcript of October 2020 Sub-Saharan Africa Regional Economic Outlook Press Briefing

document

PARTICIPANTS:

ABEBE AEMRO SELASSIE

Director, African Department, IMF

GEDIMINAS VILKAS

Communications Officer, IMF

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MR. VILKAS: Good morning, and welcome to the Virtual IMF Press Conference on the Regional Economic Outlook for Sub-Saharan Africa. My name is Gediminas Vilkas, and I am with IMF Communications Department. I'm very pleased to introduce you, Mr. Abebe Aemro Selassie, who is the IMF Director for African Department. He will give an opening remark, and then we will have time for questions. Now, thank you very much for submitting your questions online. Just a reminding, you have two options, how to do that, you can do it through IMF Press Center, just sending a message to us, or you can do it live, yourself, through Webex video platform. Just raise your hand there, and somebody will come back to you for the questions. So, without further ado, I give the floor to Abe. Please, go ahead.

MR. SELASSIE: Thank you, Gediminas. Good morning, from Washington. Thank you all for joining us today for the release of our October Regional Economic Outlook for Sub-Sharan Africa. I would like to use this opportunity to provide you with an update on how the COVID-19 crisis is impacting the region, the economic outlook, and the policy challenges that we see for the coming months.

On the health side, the onset of the pandemic was delayed in Sub-Saharan Africa, and infection rates have been relatively low, compared to other parts of the world, but limited testing could be masking the true scale of the pandemic, and, like many others, our view is that there is absolutely no scope for complacency in dealing with this pandemic. For one, the overall low numbers mask quite a bit of variation in how the pandemic is unfolding in the region.

While many countries are past their infection peaks, others have seen in a recent surge in the number of cases in recent weeks. And, indeed, the resurgence of new cases in many advanced countries and the specter of repeated outbreaks across the region suggest that the pandemic will be likely with us for some time, and so, is something to be -- continue to be treated with quite a bit of vigilance. Again, notwithstanding the overall good outcomes, we see no room for complacency in this area.

On the economic front, as we've been reporting for the last several months, the pandemic really has been quite devastating to the region. In just a few months, the crisis has jeopardized years of hard-won development gains and upended the lives and livelihoods of millions of people in the region. Regional activity dropped abruptly and quite sharply in the second quarter. In more recent days, weeks, we've seen a cautious reopening of economies and more of a forward-looking policy posture to ignite growth, and, with the loosening of containment measures, somewhat higher commodity prices, and the easing of financial conditions, there are tentative signs of a recovery in the second half of 2020.

Overall, our growth expectation this year is broadly unchanged from June. We expect economic activity for Sub-Saharan Africa to contract by three percent, this year. No country has remained untouched by the crisis. The largest impact on growth, this year, will be on tourism dependent economies, but oil exporting countries in the region, other commodity intensive countries have also been hit hard, and growth, even in the more diversifies economies, will also be significantly impacted this year.

For 2021, we do expect recovery, albeit modest, with growth accelerating to about 3.1 percent, and, beyond that, we expect the recovery to be quite gradual and fairly uneven. The entire region is not expected to return to its 2019 level of output until 2022, and for some of the region's largest economies, real GDP will not come back to the pre-crisis level until 2023 or 2024. This growth will translate into quite significant decline in standard of living, as measured by real per capita GDP, over 2020-21, a contraction of around five percent, which is significantly larger than most other parts of the world.

On policies, going forward, policymakers face quite difficult tradeoffs. Where the pandemic continues to linger, the priority remains, of course, to save lives and protect livelihoods, and for countries where the pandemic is under more control, using fiscal and monetary policy to support the recovery has to be balanced with the need to keep an eye on debt sustainability and external stability. Financial regulation and supervision needs to help crisis affected banks and firms, but without compromising, of course, the financial system's ability to support long-term growth.

Navigating this complex policy challenge will not be easy and will require a continued external financial support. Without further external assistance, many countries will struggle to maintain macroeconomic stability, while meeting the basic needs of their people. Indeed, Sub-Saharan Africa faces significant financing gaps. Much will depend on how private financing flows behave. If they were to remain below pre-crisis levels, and even taking into account existing commitments from international financial institutions and official bilateral creditors, the region could face a gap of as much as $290 billion, between 2020 and 2023.

For our part, the IMF has moved swiftly and disbursed about $17 billion, so far, in 2020, about -- more than 10 times the normal amount we disburse each year, and this money, of course, has been intended to cover the region's near-term needs and to collateralize additional support from the rest of the international community.

Private financing conditions continue to remain strained, as in many other emerging market countries. The region has seen quite a lot of capital outflows at the onset of the crisis, and, like other parts of the world, capital has been very slow to return. We are seeing some signs of return of private capital flows, but nowhere near the level of previous years.

Closing this financing gap will require a combination of additional concessional financing, timely debt relief in those countries where debt is unsustainable, and transformative reforms to attract private investment.

I want to stress that, you know, despite the crisis, the potential of the region, and the resourcefulness of African people remains intact and should enable recovery and development gains in the long run.

Tapping this potential will be vital for the region to find its way back to a path of sustainable and more inclusive development. Priority reform areas in the coming months include domestic revenue mobilization, promoting digitalization, facilitating greater trade integration, fostering competitiveness and climate change mitigation investments.

Alongside, of course, countries need to continue to improve governance, improve transparency and facilitate better private investment conditions to engender a strong recovery. None of this will be easy, but I know from my conversations with policy makers in the region in recent days that they, you know, most if not all, are committed to working diligently to tackle these reforms.

Thank you for your attention and I'm happy to try and answer your questions.

MR. VILKAS: Thank you. Thank you very much, Abe. So now we are going into the Q&A session and we will be joined through Webex by Joe Bavier from Reuters with his question. Joe, can you hear us?

MR. BAVIER: Yes, can you hear me?

MR. VILKAS: Yes, we can hear you. Please go ahead, Joe.

MR. BAVIER: Yeah. I have a couple of questions related to the forecast of an external financing gap. And it's mainly -- are multilaterals, I know you've talked about what the IMF has done, and we know what the World Bank has done, are multilaterals and bilateral lenders and donors doing enough on this front to head off what could be quite a serious problem? And if not, what more could they do? And for private lenders what role might they have to play.

And finally, what are the real-life ramifications if the gap isn't plugged?

MR. SELASSIE: Thank you. So, you know, the aggregate numbers we speak about this 290 billion that we see over the next three years, it's important that we are building that from a country-by-country estimate. And we're in such a period of uncertainty that, you know, those numbers are subject to quite a bit of uncertainty.

Whether that number materializes, or a lower number, will depend on how private flows evolve in the coming months. And I'm sure they will vary from country to country. But overall, what we do see is really, a very strong concerted effort by countries to of course promote the scope of private investments, and a stepped-up effort by all international financial institutions. This includes MDBs, us, and others to support the countries in the even that private flows do not materialize. The form of flows will depend greatly on, you know, the country's debt bearing capacity, whether debt is sustainable or not. So, there's a lot of factors that will be at play. But you know, in the absence of this kind of support to countries, of course what will happen is that there will be excessive adjustments, less investment and consumption in the countries which would be, of course, detrimental to the strong recovery that we want to see in countries.

MR. VILKAS: Thank you, Abe. The next question comes from Mario Baptista from Lusa News Agency. He is also joining us through Webex. So, Mario, go ahead.

MR. BAPTISTA: Hi. Thank you for having me. My first question is about Zambia. Do you think that the Zambia's default, which was decided by Standard & Poor's last night might have an effect on the whole debt question in the region? Because if there are no African countries seeking private debt relief, do you worry that they will use the DSSI to serve as step-debt instead of using it to help strengthen their health systems?

And also, I have another question. It is about the number of -- the 290 billion, but since you've already answered that, I will ask you another question regarding Mozambique. Do you believe that the attacks on the northern province of Cabo Delgado in Mozambique might act as a deterrent to foreign investments and therefore hurt the macroeconomic stability of the country? Because there are reports that the group, the terrorist group has extended its operations to Tanzania and also the Democratic Republic of Congo. Might this turn into a regional concern that affects the macroeconomic stability of the southern Africa region? Thank you.

MR. SELASSIE: Thanks. On Zambia, you know, even before the pandemic and the economic crisis that has brought about in the region and elsewhere, country's debt was an unsustainable trajectory. I think it's been well known. And so -- and we've seen also markets differentiating between Zambian assets and other classes of assets. So -- and I hope that will continue to be the case going forward. You know, not all African countries are treated in the same bucket, but there is a differentiation on the basis of levels of debt, of course, but also policy trajectories going forward. That's what we're seeing so far, and I hope that will continue to be the case, as is the case elsewhere.

You know, countries that have not sought relief from the private sector and they are in juxtaposition with the DSSI, you know, we've been, I think, on the record repeatedly saying that, you know, countries do need this breathing space. That's why Kristalina and David Malpass pushed so strongly for official sector credit to do what they can. We've continued to push for private sector to do what they can also. That message remains out there, exactly, so that countries have the fiscal space at this time of urgent need.

On what's happening in Cabo Delgado, it is, of course something that's of great concern. And elsewhere in sub-Saharan Africa we have seen, you know, insecurity in one country left untreated spilling over and impacting -- here I'm speaking, of course, of what's been going on in the Lake Chad basin with Boko Haram, but also the insecurity challenges that rose in Mali spilling over into Niger, and now Burkina and big swathes of the Sahel. So absolutely, I think, you know, trying to find the solutions to dampen this crisis is going to be very, very important, both for Mozambique, but also neighboring countries like Tanzania.

MR. VILKAS: Thank you, Abe. We also have some questions coming to us online. There is a question on Mozambique, as you were speaking on this now. So, this is a question from Aderito Caldeira who is from Jornal Verdade and he is asking, will it be possible for the IMF to start a new finance program with Mozambique, under the Extended Credit Facility, before the end the COVID-19 pandemic?

MR. SELASSIE: I don't see why not. I think the authorities have expressed an interest in such a program and we'd be very happy to initiate discussions with them. Again, you know, our engagement and support for countries this year is, of course, one of a very, you know, rapid financing nature, but we do want to work with countries also to foster a strong recovery as possible and that includes with Mozambique.

MR. VILKAS: Thank you. The next question is also now through Webex. It's Matthew Lee who wants to ask questions. Matthew, do you hear us?

MR. LEE: Thanks a lot. I wanted to know, I saw yesterday, the announcement of continued disbursement to Cameroon and obviously it is a country in need, but there are a lot of issues that have risen, not only about human right issues, or people that have fled the country due to conflict in the northwest and southwest, but also some alleged corruption in the distribution of COVID‑19 aid. So, I'm wondering, if you can, kind of, as you can say, how does -- how do the general principals of ensuring that this aid actually helps people? How are they implemented, generally and specifically in Cameroon?

And just finally, on Côte d'Ivoire there's controversy of your alumni Alassane Ouattara. Without getting into the politics of that, what's a been the impact of the pandemic on Côte d'Ivoire and what are your views on its prospects going forward? Thanks a lot.

MR. SELASSIE: Thanks. On Cameroon, of course, conditions remain very difficult socially, and economically as a result of the pandemic. And yesterday, actually we had -- we went to the Board for disbursements there. On almost all of our operations with countries that we've been doing in the context of the Rapid Credit Facility, we have been asking the authorities to, number one, explain what the resources are being used to. And then, number two, use their institutions, and if their institutions are not strong enough, external auditors, to show that those resources have been used for the intended purpose. I think already, you know -- and also, sorry a third element of this is that beneficiary owners of the companies that are being awarded contracts are published.

So already, you know, yesterday there was some reporting, if you look at the staff report on Cameroon, on the, you know, on how the resources from the first disbursement were used. And also, of course, you know, the beneficial owners of companies for those benefits. So, there's already some reporting. And this is something that we are working diligently to get into the public information.

We strongly, strongly believe that not only is governance important, you know, for countries benefit, but also, what we can do is bring about a lot of transparency in terms of how resources are used. This is a core function that we do through our work in helping certain countries public finance management systems, but at times like this, I think when resources are being provided quickly. It's really important also that, you know, there is transparency in how these resources are being used.

We want this information to be in the public domain so that civil society organizations, anti-corruption agencies can all scrutinize how these resources are being used and this is an area of what we are very, very diligently, following on. And that's our contribution to making sure that that there continues to be improved governance.

SELASSIE: So, on Côte d'Ivoire you know, the WAEMU region more broadly has seen even within the African context of limited infection levels the WAEMU overall has seen even lower, you know, at the lower end of infection rates. So, in terms of the direct infection numbers, even controlling for testing being low, it seems that the number of COVID cases has remained low. So that is very encouraging, and we've also seen overall in the WAEMU fairly strong economic, somewhat stronger economic outcomes than elsewhere in the region. On account of a bit more diversified economic structures that countries have. But again, you know, even there, we are looking at very anemic or even negative real per capita growth rates, including in Côte d'Ivoire. So, the conditions have remained fairly weak and they continue to you know, much of what I was saying earlier, the policy challenges remain as challenging as elsewhere.

MR. VILKAS: Thank you, Abe. And next question geos to Simon Ateba, he is from Today News Africa. So, Simon, do you hear us?

Please go ahead, Simon.

MR. ATEBA: I am Simon Ateba, from Today News Africa in Washington D.C.

We are seeing instability in Nigeria right now. There is much protests everywhere. People are protesting in this case not just against police brutality, but also unemployment, poverty. And we have seen other instability in Ethiopia. I don't know if you can, I was hoping that you can comment on the Nigerian economy and how this is that instability and protests will affect the economy? And whether you also expect such mass protest to expand all across Africa? And finally, I was also wondering how you can comment on the impact of the debt that African countries have received during this pandemic, and if you are satisfied with the way it has all been handled so far?

Thank you.

MR. SELASSIE: Thank you, Simon. So, on Nigeria and the protests. It's of course very difficult fora me to comment on, and suffice it to say that, you know, conditions, economic conditions in Nigeria of course, for the last four years or so have been very difficult in the wake of the decline in oil prices in 2015-16. Since then, their growth has been quite anemic. It has been a lot of pressure on standards of living, so there has been this dislocation and you know, as always when you have these kinds of economic difficulties, you know, social protests are not uncommon.

I think this is exactly why we have been on the record in Nigeria about how really critical it is to get all of the policy induced barriers out of the way to facilitate stronger economic growth. For the government to do more to raise revenues through the area of non-oil resources to be able to invest in health education which would, you know, allow people to be more successful at getting jobs but also improve the economy's potential. So, I think that development agenda that Nigeria has, I think, has to be tackled with gusto and vigor so that the millions of jobs that the country needs can be created. And I think that agenda remains very, very, very pressing.

On overall, the debt issue, I am not sure if you are referring to the lending that we've been providing? Or the level of debt pre-crisis? I think I addressed that, the pre-crisis level of debt earlier but you know, in terms of the money we've been providing this year, you know, a core function of the IMF of course is that when countries no longer have access through the usual forms of financing that they have -development financing, or private market financing - IMF is the one that steps forward. And at a time of crisis like this, it is the raison d'être. It's why the IMF exists, to come help countries, sovereigns in distress, while they are correcting their economies to go back to normal forms of financing. So, the financing we've been providing is critical. It is an important lifeline and all that we are asking countries to do is show that these resources have indeed been used to save lives and livelihoods.

MR. VILKAS: Thank you, Abe. I think that answers the questions.

Now we have a go to the next question, and this is for Alonso Soto, he is with Bloomberg. I think he has also question in Nigeria. So, Alonso, go ahead.

MR. SOTO: That is correct. I do have a quick follow up and then a few other questions. The quick follow up on Nigeria: I want to understand if you know, the state has kind of backed the Fund's projections for this year, and next year? How do you manage your debt impact? What are the factors with this kind of demonstrations, that the Fund will look at?

And a couple of other quick questions: I wanted to see if you can give me an update on the situation in the Congo-Brazzaville? The government yesterday said that he planned to settle about 300 billion CFA franc in domestic debt. So, I am wondering what is the status of the conversations with the Fund and the country? And also, the renegotiation of its debt with trading houses? And just one final thing, I am wondering if the Fund has any projections for debt relief to Sudan, if the country is indeed removed from the terrorist list by the United States?

MR. SELASSIE: Thanks, Alonso. On the growth projections in Nigeria, I mean, these protests happened of course, after we had closed, after the period where the data we looked at in making the growth projections for this economic outlook. And much will depend really on how these protests evolve. Lagos of course, is a very important economic hub and contributes quite a bit of economic activity to overall Nigeria activities. So, if these persist and are showing significant effects on economic data, we will internalize them in due course.

On the Republic of Congo, discussions are still ongoing on how we can provide them with rapid credit support. The barrier to this has been really the debt sustainability situation in the wake of the decline in commodity prices in 2015-16, and oil prices and of course, debt was unsustainable. They were in the process, they had initiate discussion both with official bilateral creditors but also, oil traders, to get the haircuts that would allow debt to be brought to a sustainable level. Those discussions are still ongoing, unfortunately. And there is no resolution there and now, of course, in the wake of the pandemic, it is even more pressing that Congo creditors provided the required debt relief. And we will be working as much and as hard as we can to facilitate those discussions and also once that, you know, goes through, try to find a way to support the country.

I'm very sorry but Sudan is actually in our Middle East Department, so I'm not briefed on it. And but we can get back to you with an answer question though.

MR. VILKAS: Okay, thanks. Thank you, Abe.

I think there is one more question on

Nigeria. It is coming from -- just a second -- Nume Ekeghe? And so, she is also joining us through Webex. Please, Nume, go ahead.

MS. EKEGHE: Okay, hi. My question is still on Nigeria. You mentioned earlier, I mean, someone had asked a similar question what I wanted to ask on growth projections on Nigeria, but however, is this something of concern? Because what was just said on how it would affect the the country's economy, one? But is also IMF looking at the funding towards Nigeria, and if it's been directed to a wrong use? Especially now that there are reports of this -- of protesters been harmed by the government?

MR. SELASSIE: So, you know, I think I answered the question on the economic effects earlier, it's too soon for us to know the implications and internalize that. Are we concerned? I mean, of course we are always, always concerned when we see protests. Particularly ones that are difficult like the ones in Nigeria at the moment. But also, anywhere in the world, right? So, we hope that there will be a satisfactory resolution there.

And as for the support we've provided Nigeria earlier this year, I mean, again, this support is to help, to try to cushion the awful effects that this pandemic and the economic crisis that has unfolded has had on Nigeria. It has led to a massive decline in tax revenues. The important need for the government to spend resources on health, education, and other important areas at a difficult time like this. And that's what these resources were intended for. And I think government has committed to both provide us with an explanation of what the resources have been used for and you know, audits of how that was used in due course. And we look forward to that in the coming months.

MR. VILKAS: Thank you, Abe. I think we have, still, some time for a couple of more last questions, and I am switching now to the online questions that joiners are submitting us, and there is one on Zimbabwe, from Clement Machado, from Industry Focus, and the question is: what's your view of Zimbabwe's currency migration from the U.S. Dollar to a Zimbabwean Dollar, and how can the country help ensure its currency?

MR. SELASSIE: Okay, thanks. I think we, of course, recognize the reasons why the government decided to do this change, but I think, fundamentally, in Zimbabwe, what's really needed is a period of very strong, you know, reforms that will facilitate a dialogue with the country's international creditors, but also domestically, to make sure that there is, you know, consistency in policies, and the monetary sphere, and the fiscal sphere, so that there is confidence in whatever currency the government is using. Absent that confidence that the government policies are coherent and there will not be a reversion to the unfortunate period of hyperinflation, that Zimbabwe has suffered through. Whatever arrangement there is will fail.

So, it really is about the credibility of the whole policy framework that is at stake, and that's what needs to be worked on, in our view, and, frankly, also, there is a role for the international financial community to play, particularly at a time like this, when humanitarian support is of importance, and I think those two will help move Zimbabwe forward.

MR. VILKAS: Thank you, Abe. So, I think we can take the last question, and we are going back to Webex. George Wiaffe from Ghana, he has a question, I think, on Ghana. So, George, go ahead.

QUESTIONER: Hello, can you hear me?

MR. VILKAS: Yes. Go ahead, George.

QUESTIONER: Okay, so, my question is that, in terms of the -- what are the threats to the Ghanian economy, going forward? We had some shocks from COVID-19, but, going ahead, what are the threats to the Ghanian economy, and is the debt still an issue? I know that we are being classified as higher risk of debt distress. What is the situation now? Are we improving or things are getting worse, please?

MR. SELASSIE: Thanks. So, you know, Ghana, of course, faces quite -- very significant challenges on its economy. You know, it's -- after the difficulties of 2014-'15, there had been a period of quite strong reforms and consolidation, and was on a reasonably good trajectory, but, of course, the pandemic has come and really shaken the foundations of Ghana's economy, as it has much else.

This year, the policy response has been very supportive, as needs to be the case, but, you know, going forward, it's will be very, very important to make sure that policies revert back to making sure that there is a -- much more of a focus on keeping debt stable and bringing it down gradually. So, I think much will depend on how quickly this policy recalibration takes place, and, given how high debt levels were in Ghana, I think the quicker that's done, the better.

So, I think, you know, the government is of the same view, and, you know, effecting those reforms will be of paramount, paramount, paramount importance. As you know, a lot of conversations, where, in Ghana, in our comments in Ghana, we've been saying, you know, it's really important and we strongly supported the government's vision of, as the President has been saying, Ghana Beyond Aid. That's absolutely the right vision, and, of course, that aid has to be replaced by tax revenues and other permanent domestic sources of financing, rather than debt, and so, effecting that transfer is really what's going to be key, and we'll be working with the government, through the Article IV process, to provide technical advice, whatever the government needs. Thank you.

MR. VILKAS: Thank you, Abe, and, just to conclude, there is one last question that came in, and there is a question on the difference between the global financial crisis and the pandemic, in response with African countries has had to make. So, what can you compare those?

MR. SELASSIE: I think that's a very, very good question. You know, in the context of the global financial crisis, we actually saw quite a lot of resilience in Sub-Saharan Africa. The region was not as -- hit as badly as it's being hit now, and there are several reasons for that. I think, first and foremost, except, perhaps, for South Africa and a couple of other countries, the extent to which economies were integrated into the global economy was much more limited in 2009, so, and the crisis was much more of a financial crisis. So, the spillovers into Africa came through a commodity channel, and that was short lived. So, most countries actually survived the crisis much better.

Second, countries debt levels, at that time, were much lower than they are now. So, the countries were able to have quite a big swing in fiscal deficits to cushion the effects of the slowdown in the global economy in 2009-'10. I think, you know, come 2020, I mean, the crisis, of course, is a really incredibly profound one, a really brutal crisis, shock, to the region, coming through many, many channels, commodity channels, but real economy channel, if you consider what's going on, right now, in small island economies that are tourism dependent in the region, you know, countries, like Seychelles, Mauritius, are seeing contractions in their economy of the order of 15-16 percent this year, I mean, a huge hit.

So, the crisis, this time, has come through many, many different channels, and really is a much more pronounced one than the 2009, coupled with the fact that many countries have limited fiscal space, limited additional debt-bearing capacity. That has complicated the policy response, that policymakers are facing, and is calling for much more of a tradeoffs and much more difficult policy discussions, internally. So, I think those are the key differences between 2009 and now.

MR. VILKAS: Thank you, Abe. So, I think we are concluding, now, the press conference. Thank you, Abe, for joining us, and answering all the questions, and thank you for reporters, joining us via Webex, and online, submitting questions. We still have some more lined up for you, for the reporters, at 1:00 p.m. today there is a press briefing on the Western Hemisphere. So, stay tuned for this. We are finishing it, and stay safe, and stay well.

MR. SELASSIE: Stay safe.

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