Journal Issue

African Economic Outlook: African Growth Eases as Region Responds to Price Shocks

International Monetary Fund. External Relations Dept.
Published Date:
March 2009
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Growth in sub-Saharan Africa is projected to slow, reflecting increases in food and fuel prices, slower world growth, and global financial turmoil, according to the IMF’s latest regional forecast.

The continent’s growth is projected to slow slightly to about 6 percent in 2008 and 2009, down from 6½ percent in 2007, while inflation is set to rise to an average 12 percent, says the IMF’s Regional Economic Outlook (REO) for Sub-Saharan Africa, released October 10.

So far, the report notes, the main effects of the global financial turmoil appear to be indirect, in the form of slower global growth and volatile commodity prices. But recent heightened turbulence raises the risk of a decline in resource flows to Africa in the form of private capital, remittances, and aid.

“The resilience of growth and mac-roeconomic stability in the continent is being put to a test,” Antoinette Sayeh, Director of the IMF’s African Department, told the press. “Countries need—more than ever—to be able to respond quickly to unexpected exogenous shocks. In these circumstances, maintaining, if not increasing, aid remains of paramount importance.”

Growth prospects

Although GDP growth has tapered off somewhat in sub-Saharan African countries, at slightly less than 6 percent, the growth rate for 2008 is still expected to be relatively strong, continuing the healthy growth trend of previous years.

In oil exporters, growth is expected to fall temporarily by half a percentage point, to 8 percent in 2008, reflecting mainly lower-than-expected oil output in the Niger Delta due to recurring violence there; slightly lower-than-expected production in Equatorial Guinea’s maturing main oil field; and weaker non-oil growth in Chad. Among oil importers, growth is also projected to decelerate, by half a percentage point, to 5 percent.

In 2009, the REO says, overall growth in sub-Saharan Africa is expected to remain above 6 percent.

Price shocks

But the food and fuel price shock has put upward pressure on inflation and current account deficits. The increase in inflation cuts across countries with different exchange rate regimes and different economic structures and levels of development. Overall, sub-Saharan Africa’s inflation in 2008 is projected to climb to 12 percent—a noticeably larger increase than in advanced countries.

Despite recent price declines, food and fuel prices are projected to remain substantially above their 2007 levels. As a result, and although some sub-Saharan African countries have benefited from rising prices on their exports of non-oil commodities (such as aluminum, cotton, and gold), most African oil-importing countries are expected to see a significant and lasting decline in their terms of trade relative to 2007.

Reflecting a substantial oil revenue windfall, fiscal surpluses (excluding grants) in oil exporters are projected to rise to 7 percent of GDP in 2008. Oil importers’ fiscal balances, on the other hand, are deteriorating because of lower GDP growth and the cost of policy measures to cushion the impact of the food and fuel price shock. Perhaps surprisingly, grant inflows to oil-importing countries have responded little to the food and fuel price shock.

Poverty concerns

The most pressing challenge for policymakers is to adjust to the food and fuel price shock, preserve macroeconomic stability, and shield the poor.

Food and fuel price increases could lead to a substantial increase in poverty rates in a number of countries. In 2008, through July, world market prices for rice rose by 111 percent, those for wheat 89 percent, and those for maize 48 percent, and world market prices for fuel products rose by 64–82 percent, before easing recently. The impact of the food price increases on poverty could be particularly large in sub-Saharan Africa, given that average households there spend about half of their income on food.

The fuel price increases are likely to have a smaller direct impact on poverty than the food price increases because households in sub-Saharan Africa typically spend less than one-tenth of their income on fuel products. Nevertheless, the ultimate effect of the fuel price increases on poverty rates is likely to be substantially greater than the direct effect, because fuel is an intermediate input into most other goods.


Risks to the outlook for 2009 from the global environment have increased and are tilted to the downside. One important risk is that the global financial market turbulence could slow global growth by more, or for longer, than expected, which would likely reduce demand for Africa’s exports and depress its terms of trade. In a more-pronounced global downturn, foreign direct investment, portfolio aid, and remittances inflows could slow as well.

Africa outlook

The high growth rates of recent years cannot be taken for granted

(real GDP growth, percent)
Oil-exporting countries7.
Excluding Nigeria9.312.710.49.6
Middle-income countries5.
Excluding South Africa3.
Low-income countries7.
Fragile countries3.
Including Zimbabwe2.83.0
Sub-Saharan Africa6.
Sources: IMF, African Department database, October 3, 2008; and World Economic Outlook database, October 3, 2008.

To sustain growth and keep inflation in check, countries need to be prepared to respond to sudden changes in global economic conditions, particularly in commodity prices. They may also need to consider building over time an additional cushion in external reserves to better withstand exogenous shocks.

In addition to risks stemming from unforeseen developments in the global environment, there are domestic risks. The main domestic risk is that policies could fail to preserve the growth and reform momentum of recent years, either by not providing enough cushioning for the poor or by failing to preserve sufficient macroeconomic stability. This risk appears particularly acute in several hard-hit low-income oil importers, but other countries do not seem immune.

The IMF’s latest Regional Economic Outlook for Sub-Saharan Africa is available on the IMF’s website at the following address:

IMF Revamps Loans for Countries Facing Price Shocks, Disasters

The IMF has reformed a loan program to help low-income countries cope with emergencies caused by events beyond their control.

Revision of the Exogenous Shocks Facility (ESF) aims to provide assistance more quickly, and in larger amounts, to help low-income IMF members cope with events such as commodity price changes, natural disasters, and conflicts and crises in neighboring countries that disrupt trade.

The revamp, approved by the Executive Board on September 19, also streamlined the conditionality—commitments that borrower governments make on their economic and financial policies—attached to the ESF. The modifications respond to the request from ministers at the IMF’s 2008 Spring Meetings.

The ESF was established two years ago to enhance the Fund’s ability to help low-income member countries deal with sudden and exogenous shocks. Review of the ESF to make it easier and faster for members to receive the Fund’s support has been accelerated in light of experience and the recent worsening of global economic conditions, in particular with the recent episode of surging food and fuel prices that have hit low-income countries particularly hard, an IMF spokesman said.

Key features of the modified ESF include:

Creation of a new rapid-access component, under which a country could access fairly quickly up to 25 percent of its quota for each exogenous shock, with resources normally being provided in a single disbursement. This component could be used on a stand-alone basis or as a first step toward higher access.

A high-access component, along the lines of the current ESF, with access to up to 75 percent of quota for each arrangement in normal circumstances. Resources would be provided in multiple disbursements based on reviews. This component could be used following a rapid-access component, or on a stand-alone basis.

Conditionality and requirements for access to ESF financing have been streamlined. Under the rapid access component, the member would need only to commit to appropriate policies to address the shock, and in exceptional cases, to take targeted up-front measures. Under the high-access component an economic program of upper-credit-tranche quality would be needed.

The ability to be used more flexibly in conjunction with other Fund facilities and instruments, for example, with a Policy Support Instrument.

Maintaining a focus on the impact of the shock and the related policies on the poor in program design, while dropping the requirement for a Poverty Reduction Strategy.

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