Most countries in sub-Saharan Africa have recovered quickly from the global financial crisis, with the region projected to grow by 5.5 per cent in 2011. But the pace of the recovery has varied within the region.
"Output growth in most oil exporters and low-income countries (LICs) is now close to precrisis highs," according to the 2011 World Economic Outlook (WEO) published by the International Monetary Fund (IMF). "The recovery in South Africa and its neighbours, however, has been more subdued, reflecting the more severe impact of the collapse in world trade and elevated unemployment levels that are proving difficult to reduce."
The report said that prior to the recent global crisis, sub-Saharan Africa enjoyed a period of strong growth. Growth in the region’s 29 LICs was particularly impressive at more than six per cent during 2004–08, second only to developing Asia. This reflected the improved political environment, favorable external conditions, and sound macroeconomic management.
The strong initial conditions helped most countries in the region weather the worst effects of the food and fuel price hikes of 2007–08 and the subsequent global financial crisis, it said, adding that many countries supported output by injecting fiscal stimulus and lowering interest rates. As a result, LICs in the region continued to grow at nearly five per cent in 2009, although output fell in the region’s middle-income countries — a grouping dominated by South Africa.
In most of the oil-exporting countries growth slowed, with the notable exception of Nigeria.
Most countries in the region have now returned to precrisis growth rates. In 2011, LICs are projected to grow by 6.5 per cent, it said. "Domestic demand is being supported by automatic stabilisers, expansion in public investment and social support programs, and continued monetary accommodation."
Growing trade ties with Asia are also playing a role in the region’s recovery, primarily through commodity markets. Output growth has rebounded in South Africa, but high unemployment and subdued confidence are expected to continue to dampen the pace of recovery, restricting growth to about 3.5 per cent in 2011.
Risks remain weighted to the downside, however. The pace of recovery in Europe, the dominant trade partner for most non-oil-exporting countries in sub-Saharan Africa, is modest and uncertain. More immediately, the sharp pickup in fuel and food prices stands to make a significant impact on many non-oil-exporting countries.
Rising food prices are likely to affect the urban poor in particular, given the high share of food in their consumption baskets. In response, governments will need to consider targeted social safety nets, with attendant fiscal costs. Managing these pressures, particularly against the backdrop of elevated fiscal deficits and narrowing output gaps, will be an important challenge for the region in 2011— a year with a busy political calendar, including perhaps 17 national elections.
With recovery at hand in most countries in the region, the emphasis of macroeconomic policies needs to shift to countercyclical fiscal policy helped support output growth during the crisis, but has resulted in wider fiscal deficits across the board. With growth in most countries now approaching potential, the consistency of these wider deficits with financing and medium-term debt sustainability considerations should be reviewed. To promote growth and poverty reduction, attention also needs to be given to the appropriateness of the composition of government spending and revenue sources.
Similarly, inflation remains in check in most countries, and the monetary stance seems appropriate. But policymakers should remain alert to potential pressure from rising commodity prices — particularly with growth approaching potential levels.
Other policy areas requiring sustained attention include more intensive monitoring and sounder regulation of the financial sector, continuing policy improvements targeted at the business environment, and robust public financing mechanisms to plan and control government spending, including infrastructure investment.
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