By Omoh Gabriel,
The International Monetary Fund has given Nigeria a part on the back saying it has not been a big borrower in recent time and that the economy is much bigger than even the multilateral institutions thought before the rebasing. Director of IMF Africa Antoinette Sayeh, Director, African Department department disclosed this in answer to a question.
She said that the United States non purchase of Nigeria crude will not have any adverse effect on the economy as the US no longer import crude from Nigeria.
She said “Nigeria has, in fact, not been a big borrower in recent times. It benefited from a considerable debt restructuring, maybe some 10 years ago. Now, and certainly has not been borrowing any large amounts. But Nigeria’s, you know, outlook looks very robust. You may know that from the rebasing that Nigeria just recently did that the economy is, in fact, a lot more diverse than we had previously, all of us, thought. That the services sector is, indeed, a major one. Some 50 percent of Nigerian GDP now is from the services sector. So a more diversified economy, for that reason, makes a country likely to be more resilient to shocks that may come from things like oil.
“Of course, the oil industry is, indeed, changing. In the U.S., of course, shale oil reserves are going to be brought into production. It will mean less of an U.S. demand for oil exports from Nigeria and other countries. Nigeria’s exports to the U.S. have already ceased, in oil, and from that we don’t see any major impact on the economy in the growth projection.
“The prospects and outlook we see for Nigeria, currently, we’re still projecting some 7 per cent growth this year for Nigeria. I think the authorities have knocked that down to some 6.5 per cent based on some of their concerns about some of the security conditions, also, that they’re facing.
“But Nigeria’s, you know, outlook looks very robust. You may know that from the rebasing that Nigeria just recently did that the economy is, in fact, a lot more diverse than we had previously, all of us, thought. That the services sector is, indeed, a major one. Some 50 percent of Nigerian GDP now is from the services sector. So a more diversified economy, for that reason, makes a country likely to be more resilient to shocks that may come from things like oil”.
MS. SAYEH further said “Well, there is a risk of course. That’s one of the risks to the outlook, that there could be a bigger slowdown in China. China of course is a significant partner and the largest single export market for Sub-Saharan Africa now, consuming a lot of the region’s exports of course. And of course China’s growth and the demand associated with it, impacts commodity prices more generally.
“In countries of course, in the context of facing the vulnerabilities they do and the fluctuations in commodity prices that are constantly there, certainly need to continue to have adequate buffers, to be able to address shocks that they face from the unexpected declines in prices and have those buffers in the way of reserves that they can bring to the table if needed, to tide them through unexpected shocks, such as more significant declines in prices”.
On Ghana economy she said “The situation in Ghana is indeed very difficult, as the government recognizes. The government put forward a demand to the IMF for a fund program back in August, as you heard in the press I’m sure. We’ve been working since then to of course be responsive to that request. And we’ve just had a mission come back from Accra in the first set of discussions towards a possible fund supported program.
“The authorities in Ghana fully recognize that additional efforts are needed on the fiscal side to achieve the targets that they have set for themselves, for deficit targets for this year. They’re in the process of, I think, further refining those actions that they intend to take and to making sure that the consensus they need to follow through with, with those actions are there.
“We certainly hope to be helpful to them with the program, but that needs to be further discussed of course, whether all of the actions that need to be taken are laid out and that we’re in a position to then propose a program to our board.
“But certainly the Ghanaians’ were trying to achieve a deficit, if I recall correctly, of some 8.5 percent of GDP, thereabouts, on the basis of the actions — considerable number of actions that they’d already put in place for this fiscal year. Of course things have changed since that budget went into effect and since those actions were initially announced. The situation is difficult, and our assessment based on the impact that the vulnerabilities we see already have had on growth this year. Growth is lower than we — from our projections, we think will be lower than have been foreseen. And in that context, the fiscal deficit as a proportion of GDP will certainly be higher. And we are, as I said before, in conversation with the Ghanaians’ about what they can do to take further actions to try to achieve the targets they set. But without further actions, that deficit is likely to be higher.
“This question about whether the fund could raise debt limits to allow countries facing shocks, such as Ebola, to borrow more, I would say that the ideal and the first best solution to countries facing shocks like Ebola, huge humanitarian devastation that that causes, is of course grant financing. Significant grant financing from the donor and the partner community that would help those countries tide over those shocks.
“The Fund of course provides concessional financing, but it is still loan financing. It’s not grants. And so the ideal and the first best is for countries to have as much in the way of grants to face a situation like that. And the debt limits revisions that we are of course in the process of working on and we hope to be able to take a revised debt limits policy to our board after the annual meetings, will however be very important in allowing countries more flexibility in striking that balance I spoke about between up-scaling infrastructure that they need for growth and over development spending and maintaining debt sustainability. And we will be able to roll out the new debt limits policy in the course of 2015.
“You know in terms of increased access to the international capital market we’ve seen several Sub-Saharan African countries in the international debt capital markets, and the issuance of sovereign. In particular, in the last year we’ve seen a significant increase in that is, first and foremost, a good thing.
It shows that there’s increased interest from the investing community in Sub-Saharan Africa because they see that the region’s prospects are good. It underscores the progress the region has made in better macroeconomic policies over time.
“It, of course, helps countries to diversify their sources of financing, which is a good thing. It potentially – with the countries issuing sovereign debts – helps debt issuance, potentially, for the private sector in those countries. So all in all there are good developments there.
“But countries, obviously, have to be prudent in how they take advantage of those opportunities. They need to borrow, of course, in understanding that there are some risks to the repayment of these sovereign debts. Many of them are, you know, bullet repayments that they have to make at one point in time.
“There are foreign exchange risks that they have to manage between when they issue those bonds, and when their repayments are due. Underscoring the need for continued good macroeconomic policies to mitigate the risk to the exchange rate risk that they take. But we think that having those opportunities are a good thing for Sub-Saharan Africa, but they just need to manage them appropriately.
“Of course, part of that management also is the good use of the proceeds of the sovereign bonds. Of course, high quality investments are important to enable them to be a position to be able to repay that debt down the road. So it is not a good thing to be issuing foreign sovereign bonds to pay wages. It is, potentially, a very good thing to do so at good interest rates if you’re investing in really high-quality infrastructure. Energy, for example, that then really increases potential growth and allows you to grow more robustly.
According to the Director Africa Region all in all, the underlying picture for Sub-Saharan African remains favorable. Specifically we expect the region and the region’s economy to expand by 5 percent this year, 2014 and to go up to 5 and three quarters percent in 2015.
Now of course as always, such headline numbers comprise of a number of different trends. At the moment we see this overall positive picture for the region, underpinned by three fairly divergent trends. First, we think the lion’s share of the region’s economies continues to enjoy strong growth, driven by continued public investment in infrastructure, buoyant services sectors and strong agricultural production.
Activity in the region’s low income countries, in particular continues to be strong. Thus overall, Sub-Saharan Africa is expected to continue being the second fastest growing region in the world, just behind emerging and developing Asia.
Now this positive picture coexists with the dire situation in Guinea, Liberia and Sierra Leone. The Ebola outbreak in these countries continues to spread unabated. And beyond the unbearable number of deaths, suffering and social dislocation that it has caused and still causes, it is also bringing extensive damage to the economies and institutions of these three already fragile countries.
And even with the disease limited to these three countries, we are seeing tangible negative economic spillovers on neighboring countries. Heavily tourism-reliant Gambia and to some — to a lesser extent, Senegal, have seen a number of booking cancellations in their tourism industry. Some other regional transportation hubs, perhaps Ghana and perhaps Kenya, may also see transitory declines in airline and hotel activity.
The third story line relates to the countries, albeit a small number of them, where economic activity is facing headwinds from home grown policy challenges. For instance, in South Africa, growth remains lackluster due to electricity bottlenecks, weak product market competitiveness and what have been difficult industrial relations. In a few other countries, including Ghana and until recently Zambia, large macroeconomic imbalances have resulted in pressures on the exchange rate and inflation.
“But in some, the solid growth that most countries in Sub-Saharan Africa have been enjoying in recent years, looks very much set to continue. It is important not to overlook this overall positive picture, even as the news is dominated by the formidable challenges that a number of countries in the region are facing. And here beyond the three countries being ravaged by the Ebola outbreak, it is also important to highlight the tremendous continuing difficulties in the Central African Republic and South Sudan, where civil conflict remains far from extinguished” she said.
