Sub-Saharan Africa’s Economies Set for Broad-based Growth

Good growth prospects for 2010, 2011 but fiscal deficits have risen

Domestic demand is resilient, exports increasingly targeted toward Asia

Main risks stem from unbalanced global recovery

Strong domestic demand and resurgent exports are projected to boost average growth rates in the region to 5–5 ½ percent, near to the high levels recorded before the global economic slowdown.

The key explanation for the resilience of sub-Saharan Africa has been the generally strong economic position of countries going into the global financial crisis. This allowed counter-cyclical fiscal and monetary policies to be put in place to soften the impact of the global downturn.

Nevertheless, the IMF’s Regional Economic Outlook for sub-Saharan Africa notes that the global crisis has left a legacy of elevated unemployment levels in countries with more developed manufacturing sectors and, more generally, of weakened fiscal balances. Credit growth also remains subdued.

Fiscal policy shift

In most countries, growth rates have returned close to potential and domestic demand is expected to remain strong on the basis of rising real incomes and sustained private and public investment. However, the trajectory of fiscal balances in some countries is not consistent with medium-term financial and debt sustainability. The Regional Economic Outlook suggests therefore that now is an opportune time in some cases to adjust medium-term spending and revenue plans and to start withdrawing any recent fiscal stimulus measures.

Continued fiscal support is likely needed only in a handful of countries with below-potential growth and no debt sustainability risk.

As long as inflation and credit growth stay low, there is little urgency to reverse interest rate cuts.

Over the long term, the report advocates that improving public services and infrastructure, strengthening financial systems, and maintaining an open business climate should remain paramount policy objectives.

Risks

The Regional Economic Outlook draws attention to the downside risks that remain for the global economy, with only a shaky recovery so far evident in advanced countries and continued fragility in financial markets.

If a significant further global slowdown does occur, it could dampen growth quite markedly in sub-Saharan Africa. This would delay efforts to rebuild the sound policy buffers that helped to shield the region from the worst effects of the global crisis. In addition, a heavy political calendar of...