Growth outlook is positive, but more reforms are needed

• Pages: 110

Page 110

Growth in sub-Saharan Africa (SSA) remained strong at 5-6 percent for the third consecutive year and is expected to edge up to 6-7 percent in 2007 with a renewed rise in oil production, says the IMF's latest regional economic outlook (REO) (see chart). Even in oil-importing countries, growth should remain steady at about 5 percent.

Inflation for the region is projected to remain unchanged at about 7 percent, with single-digit inflation in three-fourths of the countries. The higher growth trend in SSA is attributable to foreign demand, as well as to strong domestic investment and productivity gains supported by sound economic policies in most countries.

Although SSA governments "are spending more to reduce poverty and provide critical government services, financed in part by debt relief," the REO, prepared by the IMF's African Department, says it is too early to assess whether the higher growth has reduced poverty. At a press conference on April 13, African Department Director Abdoulaye Bio-Tchané said, "While overall growth has been strong, meeting the Millennium Development Goals [MDGs] still seems unlikely.

To reduce poverty by 50 percent, the growth rate will need to be at least 1, perhaps 2 percent more, and social and other obstacles to meeting the nonincome MDGs have not been addressed." Increased aid flows would help in that respect, but the scaling up of aid promised by the major industrial countries at the 2005 Gleneagles summit has not yet materialized.

Managing higher commodity revenues

SSA's commodity producers have, unlike during past commodity booms, saved a portion of their increased revenue and must determine how and how fast to spend it in light of limited absorptive and implementation capacity. The bottom line is that they must use it productively and manage carefully the scaling up of spending because it risks putting substantial upward pressure on prices and the real exchange rate.

The commodity boom, according to the REO, has improved the region's export prospects. "The time may be ripe for SSA to reverse the long-term decline in its share of trade," Bio-Tchané told reporters. But, although trade with Asia-China in particular-has expanded dramatically, SSA's exports are still dominated by oil and other commodities.

Its inability to diversify is due largely to a lack of infrastructure and the high costs of doing business. According to the regional outlook, some...