Sub-Saharan Africa needs solid growth plans to avoid hard landing – IMF

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Cape Town – Countries in sub-Saharan Africa require strong and sustainable growth plans to ensure periods of sharp growth don’t end in a hard landing, a working paper by the International Monetary Fund argued.

The paper, entitled Growth breaks and growth spells in Sub-Saharan Africa, explained that after nearly two decades of strong growth, average economic activity in sub-Saharan Africa decelerated sharply in 2016, against the backdrop of lower commodity prices, a less supportive global environment and, in some countries, a delayed policy response.

With the slowdown abating, the authors - Francisco Arizala, Jesus Gonzalez-Garcia, Charalambos Tsangarides and Mustafa Yenice - asked how growth can be revived in the hardest-hit countries and how can countries still growing sustain this.

The paper, published on Friday, explained that growth up-breaks in sub-Saharan Africa have tended to last for shorter periods than elsewhere in the world, exhibit larger swings, and often end in “hard landings.”

“Thus, the critical challenge in the context of the current economic difficulties faced by many countries in the region is to sustain spells for longer and avoid hard landings,” the paper explains.

The authors’ analysis shows that domestic macroeconomic policies play a critical role in achieving this. “These include monetary policy geared toward low inflation, sound fiscal policy to prevent excessive public debt accumulation, outward-oriented trade policies to make the best of opportunities offered by a globalized world, and macro-structural policies to reduce market distortions at the domestic level, to boost investment.”

The authors explained that resource-intensive countries in sub-Saharan Africa were affected by the slump in commodity prices. “While many other countries in the region continue to enjoy robust growth, some of those have started to see growth decelerate gradually and vulnerabilities emerge.

“Furthermore, it is expected that the global environment will continue to provide little support for growth in the region with growth rebalancing in China toward less resource-intensive sectors, commodity prices expected to remain low, aid flows expected to become more scarce, and growing risks of inward-looking policies across the globe.

“All this implies that the impetus to revive growth where it has faltered, and sustain growth where it has remained relatively strong, must come from domestic developments.  

“For countries in a severe growth slowdown, the most pressing challenge is to preserve macroeconomic stability which can help trigger a turnaround and lead to a period of sustained growth.

“Such a turnaround can be achieved through a policy adjustment that includes consistent monetary policy to contain inflation and sound fiscal policy to anchor public debt increases. Also, an environment that fosters investment, increased openness to trade, and more stable political environments can help growth recover.

“In countries still enjoying a growth spell, the focus should be on prolonging it and trying to avoid a hard landing. Attention should turn to addressing potential vulnerabilities, focus on rebuilding buffers - in particular, maintaining or expanding the fiscal space - and stem increases in public debt through domestic revenue mobilisation to finance a larger part of their infrastructure projects, while avoiding overheating.

“Finally, for all countries, more efforts are needed to unlock their growth potential. These efforts include advancing economic diversification to increase resilience to shocks and generate new sources of growth; deepening technology adoption; invigorating financial reforms; and strengthening macro-structural policies to reduce market distortions and risks associated with investment, and to improve the business climate.”

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