OREANDA-NEWS. October 28, 2015. Economic activity in Sub-Saharan Africa has weakened markedly although growth remains stronger than in many other regions, with growth expected at 3.75 percent in 2015 and 4.25 percent in 2016, the International Monetary Fund (IMF) said today. In its October 2015 Regional Economic Outlook for Sub-Saharan Africa, titled Dealing with the Gathering Clouds, the IMF attributed the slowdown to the combination of the sharp fall of commodity prices and more difficult financing conditions.

“This overall difficult picture masks considerable variation across the region,” said Antoinette Sayeh, Director of the IMF’s African Department. “In most low-income countries, growth is holding up, supported by ongoing infrastructure investment and solid private consumption. But even within this group, some countries are feeling the pinch from lower prices for their main commodity exports, even as lower oil prices ease their energy import bill. Even more hard hit are the region’s oil exporters, including Nigeria and Angola, as falling export incomes and resulting sharp fiscal adjustments are taking a toll on activity. Several middle-income countries, such as Ghana, South Africa, and Zambia, are also facing unfavorable conditions, including weak commodity prices, difficult financing conditions, and electricity shortages. Moreover, a number of countries in the region are facing these circumstances with more limited external and fiscal buffers than they did at the time of the global financial crisis.”

Ms. Sayeh added that policies need to adjust to this new environment: “On the fiscal policy front, for the region’s oil exporters, the sharp and seemingly enduring decline in oil prices makes adjustment unavoidable, and while some had space to draw on buffers or borrow to smooth the adjustment, that space is becoming increasingly limited. For most other countries, fiscal policy needs to strike an appropriate balance between debt sustainability considerations, on the one hand, and addressing development needs, on the other.”

On the monetary front, she noted that wherever the terms-of-trade declines have been significant and the exchange rate is not pegged, it is important to allow exchange rate depreciation to absorb the shock. Even in those countries that are not heavily reliant on commodity exports and have seen their currency come under pressure, resisting them risks losing scarce reserves. Accordingly, interventions should be limited to responding to disorderly movements of the exchange rate. Monetary policy should only respond to second-round effects, if any, of exchange rate pass-through and other upward shocks to inflation, and risks to the financial sector from commodity price declines and exchange rate depreciation will need to be carefully monitored.

“In this environment, efforts to diversify growth away from extractive industries take on renewed importance. The rapid growth of the last decade has masked deteriorating trends in competitiveness, especially among commodity exporters. To nurture new sources of growth and create sufficient jobs for the region’s growing population of young people, policy actions need to be geared toward boosting competitiveness, via progress on the business environment, infrastructure, and education. It will also be essential to build on recent progress and continue to strengthen domestic revenue mobilization as much-needed additional resources to finance investments in the region’s future. Finally, reducing inequalities, through carefully designed fiscal and financial sector policies and the removal of gender-based legal restrictions, could deliver significant growth dividends.”