by Ronald Ssekandi
The International Monetary Fund (IMF) has called for a stronger policy response to counter the effects causing Africa’s economic growth to fall further.
The global financier in its April 2016 Regional Economic Outlook for Sub-Saharan Africa issued on Tuesday warned that the continent’s economic growth is projected to fall to three percent in 2016, the lowest level in some 15 years.
Last year’s growth was 3.5 percent. Over the last decade, Africa’s growth has been averaging at six percent.
The decline is on account of the commodity price slump that has hit hard many of the largest sub-Saharan African economies.
“The steep decline in commodity prices and tighter financing conditions have put many large economies under severe strain, and the new report calls for a stronger policy response to counter the effect of these shocks and secure the region’s growth potential,” IMF said.
The financier said as a result of the price slump, oil exporters such as Nigeria, Angola, and five of the six countries within the Central African Economic and Monetary Community continue to face difficult economic conditions.
The decline in commodity prices has also hurt non-energy commodity exporters, such as Ghana, South Africa, and Zambia.
In addition to the negative effects, a severe drought in several southern and eastern African countries, including Ethiopia, Malawi, and Zimbabwe, is putting millions of people at risk of food insecurity.
Despite this gloomy outlook, the IMF said the impact of the shocks varies significantly across the region and many countries continue to register robust growth, including in per capita terms.
“Most oil importers are faring much better with growth of five percent or higher in countries such as Côte d’Ivoire, Kenya, Senegal, and many low-income countries,” the agency said.
It added that these countries continue to benefit from infrastructure investment efforts and strong private consumption.
“While the immediate outlook for many sub-Saharan African countries remains difficult, the region’s much improved business environment and favorable demographics should help bolster growth in the medium term,” the report said.
To reap this strong potential, Antoinette Sayeh, Director of the IMF’s African Department said a substantial policy reset is critical as the current policy response has been insufficient.
She said the policy reset is urgently needed in commodity exporters and some market access countries.
“Faced with rapidly decreasing fiscal and foreign reserves and constrained financing, commodity exporters should respond to the shock promptly and robustly to prevent a disorderly adjustment,” she said.
The agency said as revenue from the extractive sector is reduced, affected countries also need to contain fiscal deficits and build a sustainable tax base from the rest of the economy.
For countries outside monetary unions, exchange rate flexibility, as part of a wider macroeconomic policy package, should also be part of the first line of defense.
IMF said although the required measures may come at the cost of lower growth in the short-term, they will prevent what could otherwise be a significantly more costly disorderly adjustment.
“These policies would lay the ground work needed for the region to reap the substantial economic potential which still lies ahead,” the report said. Enditem