OREANDA-NEWS. October 13, 2015.

ANTOINETTE SAYEH, Director, African Department, IMF
BRUNO SILVESTRE, Senior Communications Officer, Communications Department, IMF


MR. SILVESTRE: Okay, good morning everybody, welcome, my name is Bruno Silvestre. Im with the IMF communications department. Id like to welcome you to this press conference with the African Director of the IMF, Antoinette Sayeh. Before I pass the floor to Madame Sayeh let me remind you that this is an on the record press conference, there will be a few opening remarks and then well go straight to your questions. Antoinette?

MS. SAYEH: Thank you very much Bruno and good morning to everyone. Thank you for joining us today for this briefing on economic developments in Sub-Saharan Africa and the prospects for the region that we see. And before taking your questions let me spend a little time talking about making a few remarks on two areas. First on the economic outlook for the region and second some thoughts on how some countries might go about addressing the challenges that they are facing. Now although growth remains stronger than in many other regions, economic activity in Sub-Saharan Africa has weakened markedly in recent months. In fact the very strong growth momentum evident in recent years has dissipated in quite a few countries. And as a result growth in the region is now expected at some three and three-quarters percent in 2015 which is the slowest pace weve seen since 2009.

But we think it will strengthen somewhat to four and a quarter percent in 2016. Now to understand the reasons behind this slow down it is useful to look at the key factors that have supported the high growth of the region over the past decade or so and perhaps the most important of those factors has been the vastly improved business and macroeconomic environment that policy makers have put in place. But in addition high commodity prices have also paid a role especially among oil exporters as well as highly accommodative financial conditions which have boosted capital flows to the region over the last eight years facilitating investment. However of late these two last factors as you know have become far less supportive. Commodity prices have fallen sharply and financing conditions have become more difficult. The upshot is the deceleration in activity that the region is experiencing. In particular with high commodity prices having played a role in some of the largest economies such as Angola, Nigeria, South Africa their current difficulties is weighing down the regional average numbers. This overall picture however marks considerable variation across the region.

In most low income countries growth is holding up, averaging about six percent in 2015 as investment in infrastructure and yours and private consumption remain strong in those countries. But even within that group some countries are being negatively affected by the sharp decline in the price of main commodity exports.

Even more hard hit are the eight oil exporting countries which together account for half of the regions GDP and include Nigeria and Angola. Their falling export incomes and sharp fiscal adjustment are taking their toll on growth which is expected to decelerate sharply to three and a half percent this year from six percent in 2014. And several middle income countries are also facing unfavorable conditions resulting from a combination of supply shocks such as electricity shortages in Ghana, Zambia and South Africa and more difficult financial conditions and weaker commodity prices.

And in many countries prospect are further compounded by the generally limited fiscal space and foreign exchange reserves that they have to offset the drag on activity. In many cases saving from the recent period of rapid growth have been limited and countries are generally entering this period with larger fiscal and external deficits than at the outset of the 2008, 2009 global financial crisis.

Let me also add that on the domestic front security related challenges and risk still prevail in a number of countries. The civil war in south Sudan and acts of violence perpetuated by (inaudible) and other insurgency groups in the region spanning Cameroon, Chad, Niger, Nigeria and (inaudible) are causing widespread suffering. They are also weighing on economic activity, straining fiscal budgets and diminishing the prospects for investment. Moreover the violence part by the general elections in Maroondi and the recent developments in (inaudible) are reminders that political cycles can also still cause turmoil.

Policy implications then: how should policymakers deal with these gathering clouds. The near term implications are three fold, we think. First on the fiscal front for the vast majority of countries in the region theres only limited scope to counter the drag on growth. For oil exporters to sharpen seemingly durable decline in oil prices makes fiscal adjustment unavoidable and the room to smooth this adjustment is becoming increasingly limited.

For most other countries fiscal policies need to continue to be guided by medium term spending frameworks that balance debt sustainability considerations and addressing development needs. Second on the monetary front wherever the terms of the trade decline has been enlarged and exchange rate is not pegged it is appropriate to allow for the exchange rate depreciation to absorb the shocks, but even countries that are not heavily reliant on commodity prices have seen their currency come under pressure. Given the strong global forces behind these pressures they are too resisting these pressures risk losing scarce reserves. Accordingly intervention should be limited to contain disorderly exchange rate movement. And monetary policy should respond only to second round effects of exchange rate depreciation and other upward shocks to inflation.

Finally risks to the financial sector from the commodity price declines especially in oil exporting countries and from exchange rate depreciation would require careful monitoring. And in the medium term efforts to diversify the economy and increase fiscal resilience remain critical. In particular strengthening revenue mobilization -- that is exploiting the regions significant untapped tax potential will be the most durable way to create fiscal space, continue to finance much needed infrastructure and other development needs and reduce reliance on public debt. In addition policy actions will need to be geared toward boosting the regions competitiveness to nurture new sources of growth. These and other topical issues will be included in the forthcoming issue of our semiannual regional economic outlook for sub-Saharan Africa that will be published on October 27th with launch events in Johannesburg and Dakar. Thank you very much for your attention. Lets now open the floor for discussion and your questions.

MR. SILVESTRE: And before we do that Id like you to please specify who you are, name and your affiliation, please. Question, the lady over there.

QUESTIONER: Good morning. I would like to ask a question regarding Zambia. Zambia has been going through economic challenges of late. Weve seen our quota has depreciated sharply in the last 42 months. Weve seen the commodity prices of copper going down and weve seen commodity prices of basic food which have drastically increased by almost 50 percent. So I just wanted to get a view from you where is the Zambia economy going? Thank you.

MS. SAYEH: As youve pointed out of course Zambia has been subject to a number of shocks in recent months. The price of copper of course. Copper constitutes 70 percent of Zambias export earnings and so that has obviously had a significant impact on fiscal position in Zambia and also on economic activity as some mining companies have been hard hit and limiting or reducing their activity. Zambia has also seen a drought as a number of countries in Southern Africa that has had an impact of course on agriculture and as you say food prices rising reflects that in part. The depreciation in Zambias currency very much reflects these developments -- developments on the copper side in particular and foreign earnings from copper and the demand in the foreign exchange markets, but also, we think it reflects a number of uncertainties about the fiscal sense in Zambia and a high very high fiscal deficit that the authorities do need to pay attention to.

Zambias growth, we think, will of course be adversely affected for 2015 as a whole as a result our current projections are for some 4.3 percent growth which is lower than its been for some time and into 2016 of course possibly also not doing significantly better. Weve just learned a few minutes ago about the minister who has just presented his budget and there we see the intention -- express intention, to significantly reduce the budget deficit. We welcome that as an appropriate urgent action to take but it is still the case that we need to review those numbers before we can give an assessment of how significant and credible the budget is. Weve just now started to review it.

Zambia has bright prospects of course if actions can be taken already to address this very difficult time and especially actions on the fiscal front. Thank you.

MR. SILVESTRE: Another question, a gentleman over there. In the back.

QUESTIONER: My question has to do with fiscal reform undertaken in mobilizing budgetary resources in Burkina Faso. Our country undertook a reform of the mining sector which will affect the sector and my question is: will this have an impact on direct investment in the country? And what can be done to ensure that there is not a flight of investors? My second question has to do with the situation of the franc CFA. What is the impact of the political stability on the economic policy for 2015 and next, what this has to do with the franc? Do you think that the fixed rate is an opportunity or a stranglehold on the economies that work on the basis of the franc.

MS. SAYEH: Thank you for those questions. Burkina Faso has gone through a very difficult year in the course of the last year. Of course beginning with the uprising about a year ago, giving rise to the change in government with previous President Compaore leaving and the installation of a transition government. I should say that of course we continued our work with Burkina Faso, with the transition government and were quite impressed with a very strong commitment that the authorities, the transitional authorities, made to pursuing the macroeconomic reforms and the program supported by the ECF -- making some progress and certainly, on the fiscal side, doing quite an impressive job given the pressures that the country was experiencing.

About the mining code and the changes in that code and whether that's going to adversely affect investment and how investors will react. This has been a long project, being worked on for some time in Burkina. The sense that revenues from mining, natural resources, were not as beneficial and not as great as they could be for Burkina, (Burkina is not the only country that has felt that it could do better by its natural resource wealth), and the Burkina authorities have taken the decision to take another look at the mining code to make sure that new investment contributed more to revenues. That of course in a way that would still give enough incentives to private investors to make the considerable investments that are necessary to be able to explore mining there. And striking that balance has always been an objective of the revision of the code and that has been the advice we've given, that Burkina certainly has to try to strike a balance to do better because those mining resources are of course exhaustible and ought to be exploited in a way that benefits Burkina over the long-term. But at the same time the private sector is depositing significant investments and needs to earn returns. We think that the final version of the code certainly has struck that balance and its passage will be a good new step in the management of natural resources in Burkina Faso.

You also asked about the impact of the exchange rate and the CFA. The fixed exchange rate between the CFA franc and the euro, that currency arrangement, has served the zone well in the course of the last many years. Certainly when you look at the turmoil in the midst of the financial crisis 2008-2009 and how the zone fared, the currency was certainly a stabilizing factor. And that has been an anchor of both monetary and fiscal policy in the zone. It has really helped with the management and containment of inflationary pressures, and has also helped the broader macroeconomic objectives of the region. Of course with a fixed exchange rate, one loses the opportunity of using the exchange rate to help to adjust to economic financial disturbances. And that has been a bit of a challenge. It's more of a burden placed on fiscal policy and there's a need to really make sure that structural policies are pursued in a way that sustains and improves competitiveness. And that has been a challenge in a number of countries in the zone. Structural reforms are certainly in need of acceleration. And we think with that being done, of course, that will certainly help the zone to continue to reap the considerable benefits of the exchange rate arrangements they have.

MR. SILVESTRE: Thank you. Other questions?

QUESTIONER: You mentioned financial conditions in your introductory remarks. What will be the impact of a tightening of the world financing conditions for the region, especially if and when the U.S. increases interest rates, and especially for that part of the continent which is more integrated in the financial system? Thank you.

MS. SAYEH: Thank you for that question. A number of economies in Sub-Saharan Africa, and the countries that we call frontier economies in the region, have of course in the last several years tapped into the international financial markets and have issued sovereign bonds with a view to often financing major infrastructure investments, but sometimes also financing budget deficits more generally. And a number of countries have planned to further access financing from those markets, but in the last year or so we've seen certainly less issuances on the sovereign bond side for countries and at a higher cost already than some of those countries had paid in their first issuances when conditions were better. So conditions are already more difficult for accessing markets for a number of countries in the region. We saw just yesterday the most recent Ghanaian bond that unfortunately was at a higher price than one would have wanted to see or like to see, reflecting the conditions already in those markets and the more difficult context for sovereign bond issuance. We think that is going to continue to be the case, and countries therefore have to be very careful in their plans to access those markets and calculate and weigh the costs and benefits carefully in light of what is likely to be further increases in the rates. What we've seen in Sub-Saharan Africa over the last several years has been an increased interest in the region from the perspective of it being a profitable destination for investors. And we think that has continued in a number of countries. But of course, returns in the face of higher interest rates in advanced economies will make investments in those economies more attractive to those investors and may therefore mean less in the way of new investments into Sub-Saharan African sovereign bonds.

QUESTIONER: Zimbabwe announced that they have plans to pay off some debt to the IMF and the World Bank. Could speak to that and also if there is talk of maybe new loans in the future when this debt is done?

MS. SAYEH: Zimbabwe and its international financial institution partners and bilateral partners met yesterday here to discuss recent developments in Zimbabwe and progress on the reform program that the Zimbabwean authorities are implementing in the context of a staff monitored program, an IMF staff monitored program that Zimbabwe is implementing. As you know, Zimbabwe has significant arrears to the international financial institutions and to the international community as a whole that makes additional financing to Zimbabwe impossible. So it is a priority for the Zimbabwean authorities to, as quickly as possible, try to clear the arrears to international financial institutions as a first step in being able to access new financing that is so desperately needed for Zimbabwe to make progress on economic and social issues.

So the presentation yesterday was on proposals for clearing the arrears to the World Bank Group, African Development Bank Group, and the IMF. And the details of those proposals are still being worked out. Of course, there is the discussion of a bridge financing that would be available to clear the arrears to the World Bank and the African Development Bank and possible use of Zimbabwe's SDR holdings to pay the arrears to the IMF. Details are still being worked on, but all in all, these options were looked upon favorably in the meeting we had yesterday and were seen as feasible to put in place.

Of course that would just be one step in the process of getting more resources for Zimbabwe. Zimbabwe still has the task of demonstrating a strong track record of reforms. That's what the staff monitoring program is trying to help it to do. The second review of the staff monitored program was recently done. The third review will take place in the first quarter of 2016. And if performance continues to be very good under that program, our hope is that the process of clearing the arrears proceeds and that it could be possible by the middle of next year to see Zimbabwe clear its arrears to all of the IFIs and thereby being able to benefit from new financing from them. But a very important next step will be also of course beginning the discussion with bilateral creditors about how the debt to them will be dealt with.

MR. SILVESTRE: Thank you. The gentleman over there, fourth row.

QUESTIONER: Thank you very much. I have a trinity of questions for you. My first question is about the refugee situation within East Africa. We've seen Kenya playing host to a number of refugees from Somalia. Weve also seen many from South Sudan, and to some extent the DRC. What does this represent for the economy moving forward knowing that weve been seeing a rise in the numbers?

My second question is about falling commodity prices. What will be the potential impact of this knowing that Kenya has recently announced discoveries of commercially viable oil? What will this impact have on the domestic economy? Final question is about the cash crunch in Kenya right now. The counties have yet to receive money from the central government when it comes to paying the wages for the staff. As IMF demands, Kenya has been trying to ensure that it has a robust policy and that theres efficient fiscal discipline. What would be your remarks around this? Thank you.

MS. SAYEH: Regarding your first question on the impact of increased refugees on the Kenyan economy, it is certainly, an additional pressure on the economic situation in Kenya. Of course, Kenya is not the only country that is trying to deal with influx of refugees. We see the same situation in a country like Chad as well, as more refugees from conflict are entering that country.

Of course, additional refugees do have an impact on the fiscal conditions in these countries as there are more spending pressures there to accommodate refugees. Of course, the international community helps often with refugees, but there is more wear and tear on infrastructure and also accommodations that country authorities sometimes have to finance. Refugees do add to pressures on budgets. Weve not done, I should say, any major new work on looking at the impact of refugees on Kenya, but thats certainly an issue that needs to be watched and looked at in the months ahead.

On falling commodity prices, of course, Kenya currently is a beneficiary of falling petroleum and oil prices as its currently still a net importer of oil. But as you say, there have been discussions about investments in a new oil potential in Kenya. Your question is whether the falling oil prices will adversely affect those plans. I think investors in things like oil have often a long term vision on the prices theyre looking at to determine whether making those investments make sense or not.

When we look across the region as a whole theres certainly a couple of places, not on the oil front, but maybe in iron ore in a place like Sierra Leone where weve seen some stepping back of some investors already in response to declining commodity prices. Weve not seen that across the board overall so far. I think investors are still trying to look at a long term perspective about whether it still makes sense to have those investments. Weve not seen a pullback overall. Ive not heard that investors in Kenya or possible investors are having second thoughts yet. But, again, thats also an issue to keep watching.

You talked about a cash crunch at the county level and the fact that counties are having difficulty receiving the revenues from this federal government level. That may be some of the hiccups in the very still new process of decentralization in Kenya. Our sense is that the Kenyan authorities so far have been doing a reasonably good job on the fiscal and macro front. Thats reflected in the review of our precautionary instrument that we currently have for Kenya that we deem to be on track. We think Kenya has done a reasonable good job managing the pressures that its also facing. It is a work in progress with devolution and decentralization there, and maybe there will be at times delays in resource flows that need to be looked at and issues on the public financial management architecture that needs to be strengthened to be sure that resource flows are smoother than youre saying they are currently.

MR. SILVESTRE: Thank you. Lady here in the third row.

QUESTIONER: Thank you. Id like to know what advice you give to African states in difficult situations, having to adjust with revenues which are falling. Do you advise pursuing investments because you say that a balance has to be struck between the need to pursue this and reduce the deficits?

My question arises because I think of a concrete case, the case of Cameroon whose revenues are falling. Should Cameroon pursue investments with a view to obtain strong growth? Should we favor austerity policies in Cameroon? Cameroon cannot compete with developed countries if the IMF is saying stop investments. Thank you.

MS. SAYEH: Of course, Cameroon, as the other five member countries of the Sumac oil producers, are facing a considerable shock with the decline in oil prices. Those prices are expected to continue to be very low for quite some time, and those countries as a whole have very deeply dug into the buffers that they had before. As a result, some of them are not able to pursue counter-cyclical policies as a way of trying to navigate these headwinds of the oil prices, and do need to adjust to what is possibly a permanent decline in their revenues.

So how do countries do that? Our advice to countries differs depending on their starting point and their circumstances. Where countries do have buffers to deploy to help to ease the process of adjustment, there are times when those countries come to the IMF to ask for support in helping the process of adjustment. We remain open to helping countries to do that. When they dont have those buffers and dont have financing to help with those buffers they do need to adjust.

What happens when they dont collect the revenues? They accumulate arrears. They dont have investments. They say they will have investments but they, in fact, dont. They implement a budget that is not financed. Governments have to look both on the revenue and the expenditure side to see what they can do, and to see what prospects there are, especially in oil economies, for raising non-oil revenues. Theres sometimes low hanging fruits to doing that in some countries. Some of it is more medium term, of course, because the economy needs to be more diversified to get more non-oil revenues.

But there are times when compliance is just weak in some countries on the non-oil side, so theres room in some places to do better on revenues. And, of course, theres room to reduce oil subsidies in a number of countries. Cameroon has made progress on that recently, and we very much welcome that. Thats been part of the governments effort to adjust and it has taken steps to reduce subsidies. Thats another big drain on resources in many countries. Of course, they need to look at investments in a way that tries to preserve fiscal space for mitigating the impact of this difficult time on poorer segments on the population.

Not to say that investments are not important, but investments that have not yet begun can, perhaps, be delayed until a time when the economy has more resources to deploy. Our advice is not typically to say, dont do investments. We dont say that. We say, of course, when youre faced with financing pressures as strong as these ones, you ought to certainly make sure that the investments you pursue are the highest quality investments with the highest possible impact. Where theyre not then you have, I think, some room to reconsider those investments. So thats been our advice to some countries.

MR. SILVESTRE: Thank you. I think we have time for one more question. In the back.


The government has just introduced a cocktail of foreign exchange restriction policies in Nigeria. There are restrictions, currency restrictions which Disraba currently posed. They have devalued the currency. Now, I think thats the second devaluation. Are you expecting a third devaluation? With the restrictions in place, the devaluation is already taking place. If they continue to devalue, what effect will this continued devaluation have on the local people?

MS. SAYEH: Okay. Of course, the exchange rate pressures in Nigeria and other oil producers has been considerable in the course of this past year because of what has happened in terms of exchange earnings as oil prices have reduced those considerably. In the case of Nigeria, of course, a number of other factors have been at play.

Those, of course, include in the run up to the elections this year, some uncertainty about what the possible outcome of those elections would be. Since the elections, a continued uncertainty about the policy direction that the current administration is going to take, the waiting for a cabinet, the vision and plans for pursuing the reform effort, and what can be expected from that. So its certainly the case that there are a number of factors that have led to pressures on the Naira.

In response, of course, the exchange rate being an important instrument of adjustment in countries that have a flexible exchange rate, we think its been appropriate to allow the exchange rate to depreciate. With a view to helping to contain the demand for more foreign exchange, and to help contain the level of imports that was not sustainable in light of the shock to the Nigerian economy. So the exchange rate plays a very important role there. There are countries that dont have the exchange rate, and as a result have an even more arduous burden of adjustment on the fiscal side. Thats what Nigeria and other countries that have an exchange rate can avoid. So we think its appropriate to have the exchange rate adjust.

As you say, the central bank has introduced administrative measures that limit access to foreign exchange and that ban certain imports as a way of restricting the demand for foreign exchange. Those are measures that are quite detrimental we think. It has certainly led to a lot of unhappiness in the private sector, as far as weve been aware, and understand that private investors see this as very detrimental to their economic activities. So its not something we think is sustainable or advisable. We hope that there will be an opportunity to review those restrictions and permit the exchange rate to continue to adjust.

You asked what that meant for the Nigerian population as a whole. Clearly, some of the products that are being disallowed are products that average Nigerians buys. Those restrictions on those products are already making it harder for the average person to buy milk at an affordable price. So theyre already feeling the impact of those restrictions. Not in a very beneficial way, so we think its certainly advisable to have a second look at those.

MR. SILVESTRE: Thank you. Well, I think we are out of time, so this will conclude our press conference of the African Department. Id like to thank Antoinette Sayeh for her time and thank you all for participating to this press conference. I will remind everybody that I do have here copies of the opening remarks in English, French, Spanish, and Portuguese. Thank you.

MS. SAYEH: Thank you.