African Consultative Group Meeting: Chairman African Caucus, IMF MD Says Medium-Term Outlook Remains Cloudy

April 24, 2017/IMF

Minister Kenneth O. Matambo, Chairman of the African Caucus, and Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), co-chaired the African Consultative Group meeting today at the IMF Headquarters. They issued the following statement after the conclusion of the Group’s meeting in Washington.

We had very productive discussions on Africa’s economic prospects, focused on policy challenges and opportunities. Reflecting the difficult external economic environment, particularly related to continuing low commodity prices and security-related challenges, economic growth in Africa slowed in 2016 to its lowest level in two decades. However, there continues to be significant variation in economic performance across countries, with non-resource intensive countries, particularly in sub-Saharan Africa, continuing to grow robustly.

“We agreed that the medium-term outlook remains clouded. The external environment has improved somewhat, but significant downside risks and policy uncertainties remain. A possible faster-than-expected normalization of monetary policy in the US could imply a sharp U.S dollar appreciation and further tightening of external financing conditions, as well as a higher external debt burden. Famine in Somalia, South Sudan, and possibly northeastern Nigeria, drought in eastern Africa, and pest and armyworm infestations in some southern African countries could also create food insecurity in about half of the countries in the region.

“Against this backdrop, we agreed that the policy adjustments needed to address the large macroeconomic imbalances faced by some of the countries hardest-hit by the commodity price fall, and to contain emerging vulnerabilities in other countries, should not be delayed. Most oil exporters, particularly in Sub-Saharan Africa, continue to face the need for a large fiscal adjustment to reflect the permanently lower oil prices, and in countries with scope for exchange rate flexibility, the exchange rate should be allowed to absorb pressures, while eliminating exchange restrictions. Even for those countries that have continued to grow robustly, a gradual, growth-friendly fiscal consolidation may be required to address emerging vulnerabilities. More broadly, efforts to enhance domestic revenue mobilization, public financial management, and financial sector deepening while addressing long-standing weaknesses in the business climate will all support a resumption in stronger and more inclusive growth. Finally, we concurred that there is a need to develop a more integrated and well-targeted social safety net.”

Minister Matambo noted that “addressing the heightened vulnerabilities facing African economies will require an invigoration of policy measures to address macroeconomic imbalances, rebuild fiscal and reserve buffers, and advancing structural reforms to tackle bottlenecks to broad-based growth and enhance economic resilience. Our countries’ efforts to tap into non-concessional financing to augment the fiscal space for development expenditures, shall be accompanied by reforms aimed at improving public investment efficiency and strengthening capacity for debt management, with the view to preserve debt sustainability. The Fund has a critical role to play in supporting African countries’ efforts in addressing the macroeconomic and structural challenges, through enhanced policy advice and technical assistance, but also adequate financial support where required.”

Ms. Lagarde stated that “the IMF will remain closely engaged with its African members. The Fund will continue to support the authorities’ efforts to not only address the current economic challenges but also to emerge from them stronger and on a path to achieve sustained inclusive growth. The Fund’s support in these efforts can take several forms, depending on countries’ needs: policy advice, technical assistance and training, and—where appropriate and needed—financial assistance. For those members facing situations of food insecurity or famine, we remain prepared to assist promptly, consistent with our mandate, including with additional financial assistance as warranted. The IMF will continue to strengthen the analytical underpinning of its policy advice, and seek to adapt to meet the evolving needs of the membership.”

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