Africa's Low-income Countries Lead Growth Forecast

More strong growth ahead for most sub-Saharan African low-income countries

Inflation set to rise as global food, fuel prices surge, growth strengthens

Time ripe to tackle high fiscal deficits, overly accommodative monetary policies

The IMF’s latest Regional Economic Outlook projects that these countries’ output will expand on average by 6 percent in 2011, compared with last year’s 5½ percent pace.

This performance would be on a par with the region’s high-growth surge in the mid-2000s. The main engines of the low-income countries’ expansion are expected to be exports and private consumption, with the public sector taking more of a back seat.

The omens are good also for oil-exporting countries. Booming oil revenues are already filtering through to many non-oil sectors and easing government financing constraints. A big question is whether governments will be able to exercise sufficient control over government spending to prevent boom-bust cycles.

As always, however, there are risks to growth. What is good for oil exporters may depress real incomes and subdue activity in oil importers. Furthermore, lingering uncertainties in the global outlook and a heavy election calendar in Africa could impinge on growth prospects.

Some countries lag

In contrast to the buoyant low-income countries, most medium-income countries are still struggling to overcome dislocations caused by the global financial crisis (see chart). Within the Southern African Customs Union, recovery from the downturn has generally been at a slower pace than elsewhere in sub-Saharan Africa.

South Africa in particular was hard hit by the global financial crisis. Its recovery and those of many of its middle-income neighbors look set to be gradual, held back by weak demand from Europe and internal dislocation caused by the crisis.

The surge in global food and fuel prices has begun to nudge up consumer price inflation rates across the region. To date there has been considerable variation among countries in the extent of pass-through to domestic prices. In some, inflation has not increased much, reflecting good local harvests. But in several countries, inflation has already increased perceptibly.

Increased income support

In the wake of these developments, the poor in urban areas and landless rural households are set to face increasing difficulties meeting their food and transportation bills. Some countries have introduced price controls to soften the impact. But such...