Africa€™s Short-term Priority: Tackle Shock of Lower Oil Prices

Overall outlook favorable, but oil price drop trims oil exporters’ growth prospects

Decline in oil prices offers unique change to reform energy subsidies

More economic diversification can tap strong opportunities for long-term growth

She told a news conference during the 2015 IMF–World Bank Spring Meetings in Washington D.C. that the subcontinent is set to remain one of the world’s fastest-growing regions this year.

But although the economic outlook continues to be favorable, growth would this year likely settle in the lower end of the range of the past few years, Sayeh stated, mainly reflecting the impact of the sharp decline in oil prices on the region’s oil exporting economies such as Nigeria and Angola.

Sayeh said sub-Saharan Africa is set to post another year of solid performance in 2015, and an expected growth rate of 4 ½ percent this year would leave the region’s growth performance second only to that of emerging and developing Asia.

“That said, the economic expansion this year will be at the lower end of the range experienced in the recent years. This mainly reflects the impact of the sharp decline of the oil and commodity prices that we have witnessed over the last six months,” Sayeh stated.

Hard-hit oil exporters

The oil shock would have very differentiated effects on sub-Saharan Africa’s diverse economies, she said. Oil exporters would be hard hit and, with generally limited room for maneuver on budgets, significant fiscal adjustment would dent their growth outlook.

Oil importers, conversely, stand to benefit from lower oil prices, although gains would be partly offset by lower prices for their non-oil commodity exports. But infrastructure investment and strong consumption would likely support growth there—particularly in low-income countries.

Another, more domestically induced problem area for the region is the Ebola outbreak that has affected Guinea, Liberia, and Sierra Leone. While slowly abating, the disease continues to exact a heavy economic and social toll in those countries.

In addition, security-related risks have recently come to the forefront, including in the Sahel and Kenya. “Beyond the unbearable humanitarian costs they have on societies, these incidents, if they were to escalate, would also pose serious fiscal risks and further deter domestic and foreign investors,” Sayeh said.

Rapid reversal

Externally, global financial conditions could tighten as U.S. monetary policy normalization proceeds. The large fiscal...