Information about Sub-Saharan Africa África subsahariana

1. Sustaining Growth amid Global Uncertainty

International Monetary Fund. African Dept.
Published Date:
May 2012
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Sub-Saharan Africa continues to record strong economic growth, despite the weaker global economic environment. Regional output rose by 5 percent in 2011, with growth set to increase slightly in 2012, helped by still-strong commodity prices, new resource exploitation, and the improved domestic conditions that have underpinned several years of solid trend growth in the region’s low-income countries. But there is variation in performance across the region, with output in middle-income countries tracking more closely the global slowdown and with some sub-regions adversely affected, at least temporarily, by drought. Threats to the outlook include the risk of intensified financial stresses in the euro area spilling over into a further slowing of the global economy and the possibility of an oil price surge triggered by rising geopolitical tensions.

Despite difficult external conditions, economic activity in sub-Saharan Africa expanded at a solid pace in 2011, with the region’s output growing by 5 percent—a faster pace than the world economy as a whole, but still significantly slower than in the precrisis period (2004–08), when regional growth averaged 6½ percent.

Most countries participated in this expansion, although drought slowed growth in many West Africa Economic and Monetary Union (WAEMU) member countries and post-election civil strife saw GDP decline by close to 5 percent in Côte d’Ivoire. Supportive macroeconomic policies played an important role in sustaining growth in many countries across the region.

Rising global food and fuel prices contributed to inflationary pressures in many countries, although food prices across the region were significantly affected by local supply conditions. Large and sustained jumps in inflation were mostly concentrated in eastern Africa—eventually inducing sharp monetary tightening in several affected countries that is expected to cut inflation over the course of 2012.

For 2012, regional growth is expected to rise slightly, helped by new resource production in several countries and by recovery from drought and civil conflict in the WAEMU countries; adjusting for these one-off factors, the pace of growth would be slightly lower than in 2011. For the region’s two largest economies, growth in South Africa is set to slow (to below 3 percent), held back by weaker exports to advanced country markets, and to remain broadly unchanged in Nigeria (around 7 percent), notwithstanding some fiscal consolidation. For most countries in the region, growth rates will either be unchanged or slightly weaker than in 2011.

The region’s continued strong performance has been helped by favorable commodity prices, increased export diversification toward faster-growing Asian markets, and financial systems that are, for the most part, insulated from the immediate effects of stresses in global financial markets (see Chapter 2). Natural resource exports contribute importantly to exports and budgetary revenues in a large number of sub-Saharan African economies, and demand for these products remains reasonably robust, most notably for oil (Chapter 3). Macroeconomic policies have remained generally accommodative, although fiscal consolidation is underway in several countries, and monetary policy, as noted above, has been tightened sharply in several eastern African economies. Indications are that aid flows, though dipping slightly in 2011, and remittances have remained broadly resilient; but the impact on aid flows of a global recession is typically felt over several years.

Global economic uncertainty poses important downside risks to the region’s economic outlook. Resumed financial stresses in the euro area could spill over into a broader global slowdown, with associated weakening of commodity prices, global trade flows, and foreign investment. The impact on sub-Saharan Africa’s individual economies would depend, to a large extent, upon how directly their economic and financial systems are linked to Europe. A surge in oil prices, linked to geopolitical tensions, is another risk factor: the impact on sub-Saharan Africa’s oil importers would depend both on the size of the price shock and the extent of the global slowdown that a large oil price shock would likely trigger. Africa-specific risks include intensified political turmoil in some countries and further climatic shocks.

There are no “one-size-fits-all” macroeconomic policy prescriptions for sub-Saharan African economies, but some general themes can be identified:

  • For most countries in the region, fiscal positions are weaker than prior to the onset of the global economic crisis in 2008–09. The continuation of strong economic growth in 2012 should provide room for fiscal consolidation measures to rebuild fiscal buffers over time. Absent financing constraints, significant tightening should be avoided where growth remains weak and there is significant reliance on Europe.
  • In countries where inflation surged in 2011, returning inflation rates to single digits should remain an overarching priority, or else high inflation will become entrenched and even more difficult to dislodge later. Both monetary and fiscal policies have roles to play.
  • Contingency plans are needed to allow a prompt response to changing global economic conditions. Allowing fiscal deficits to rise, including by temporary policy measures, offers an effective tool for supporting domestic demand in the face of a global downturn, given sufficient financing space. Where available, monetary and exchange rate adjustments offer additional policy flexibility.
  • Large oil price increases will have significant adverse effects on oil-importing countries, particularly if the shocks are protracted. While external financing can play a useful role in assisting countries to respond to short-lived shocks, pass-through of oil price shocks into retail fuel prices will typically be the most effective route to prevent any destabilization of fiscal positions and to promote efficient use of fuel over time. Targeted fiscal measures will be needed to protect the less well-off, and should be part of the contingency planning.


Sub-Saharan Africa has so far maintained strong growth in the face of a hesitant world recovery, albeit with differences in performance among country groups. In 2011, as in the last decade, most of the countries of sub-Saharan Africa—particularly low-income countries and oil exporters—were among the world’s better performers in terms of growth. The outlook for 2012 remains broadly favorable, with one-off factors contributing to a modest pick-up in the pace of growth, although downside risks, both external and domestic, threaten to undermine some of the region’s growth momentum. Sub-regional problems include drought in the Sahel, lingering inflation in eastern Africa, a sluggish recovery in South Africa, and increasing security tensions in parts of West Africa.

While global growth has been slowing, growth in sub-Saharan Africa has remained robust, running at 5 percent in 2011 (Tables 1 and 2 and Figures 1 and 2).1 Growth in sub-Saharan Africa is expected to approach 5½ percent in 2012, a better performance than other major regions aside from developing Asia.

Table 1.1.Sub-Saharan Africa: Real GDP Growth(Percent Change)
Sub-Saharan Africa (Total)
Of which:
Oil-exporting countries8.
Middle-income countries15.0-
Of which: South Africa4.9-
Low-income countries17.
Fragile countries3.
Memo item:
World economic growth4.6-
Source: IMF, World Economic Indicators database.

Excluding fragile countries.

Source: IMF, World Economic Indicators database.

Excluding fragile countries.

Table 1.2.Sub-Saharan Africa: Other Macroeconomic Indicators
(percent change)
Inflation, end-of-period8.
(percent of GDP)
Fiscal balance2.3-5.3-3.8-1.5-0.7-0.5
Of which: Excluding oil exporters-0.7-4.6-4.5-4.5-4.1-3.5
Current account balance0.9-3.1-2.4-1.8-2.0-2.6
Of which: Excluding oil exporters-5.0-5.3-4.8-5.5-6.8-6.7
(months of imports)
Reserves coverage4.
Source: IMF, World Economic Indicators database.
Source: IMF, World Economic Indicators database.

Figure 1.1.Sub-Saharan Africa: Real GDP Growth by Country Group

Source: IMF, World Economic Outlook database.

Figure 1.2.Sub-Saharan Africa: Low-Income Countries and Other World Regions: Real GDP Growth

Source: IMF, World Economic Outlook database.

The apparent disconnect between growth in sub-Saharan Africa and the broader global trend is, in part, misleading. First, the growth pick-up in 2012 is being helped by new natural resource production in several countries (including Angola, Niger, and Sierra Leone), some rebound from drought in the Sahel and parts of eastern Africa (including Kenya), and strong post-conflict recovery in Côte d’Ivoire. Adjusting for these one-off effects, the region’s growth rate is expected to slow by about ½ percent between 2011 and 2012. Second, the growth outlook for 2012 is somewhat less favorable than outlined in the October 2011 Regional Economic Outlook, with the growth projection for 2012 now cut by almost one-half a percentage point, driven in large part by the weaker economic outlook for South Africa.

Economic conditions, prospects, and risks vary significantly within the region.2 While recent indicators point to some generalized slowing in export performance (Figure 1.3), sub-regional and country-specific factors play a significant role. West Africa, for instance, was adversely affected in 2011 by the developments in the Sahel and Côte d’Ivoire, although a solid recovery is expected in 2012 (Box 1.2). In East Africa, several countries experienced very high inflation rates last year, and the consequential tightening in monetary policy will act as a constraint on output growth in 2012 (Box 1.3). For South Africa and its immediate neighbors, the evolution of trading-partner demand is particularly influential, with weak demand from Europe impairing growth prospects (Box 1.4).

Figure 1.3.Sub-Saharan Africa: Macroeconomic Indicators

Sources: IMF, International Financial Statistics database; and IMF, African Department database.

Differences are also evident when one breaks down the region on the basis of key export products and income levels:

  • Among the region’s oil producers, GDP growth is expected to reach 7 percent in 2012, helped by new production coming on stream in Angola and higher output levels in Chad. The non-oil sector is expected to record strong growth in most cases—a recurrent feature in Angola and Nigeria for several years—although some cooling is expected in Cameroon and Equatorial Guinea.
  • Most of the middle-income countries in sub-Saharan Africa are projected to experience slower growth this year. In most cases—including Botswana, Mauritius, and South Africa—the slowdown stems from close linkages with global trade and financial markets. In Ghana, growth will remain elevated (close to 9 percent), but down from 2011, when GDP surged on the back of new oil production. Output growth in Senegal is set to recover from the slowing effects of the 2011 drought.
  • Low-income countries (excluding fragile countries) continue to experience generally robust, if now slightly weakening, activity.3 Excluding Niger and Sierra Leone—where the large mining ventures (and oil in the case of Niger) will push GDP growth rates to 14 and 36 percent, respectively—average growth rates are expected to slow by about ¾ percentage points between 2011 and 2012. In Mali, a bounce back from the 2011 drought’s impact on agriculture is expected, although this could be offset by the effects of the recent political turmoil. Growth continues to slow in Malawi, where an overvalued exchange rate and accompanying tight controls over access to foreign exchange are having disruptive effects on economic activity.
  • Eight of the 12 countries in sub-Saharan Africa identified as fragile because of prolonged institutional weakness or conflict are expected to see stronger growth in 2012 than in 2011. Particularly noteworthy are (i) the sharp rebound in economic activity in Côte d’Ivoire since the election-related violence in the first half of 2011 (with growth set to reach 8 percent in 2012) and (ii) the further pick-up of growth in Liberia (to near 9 percent), as iron ore production increases. In Guinea, mining investment is set to rise sharply, offering good prospects for strong output growth over the medium term, given the country’s rich natural resource base.


Most sub-Saharan African economies have, over the last decade, recorded sustained growth at a pace that previously had seemed well out of reach. But how confident can we be that this high growth will be sustained?

Although subject to downside risks, the overall picture in sub-Saharan Africa is markedly more buoyant than the outlook for some other regions in the world, notably the advanced economies of Europe and North America. In part, this reflects characteristics that many countries in the region share with other developing economies. Growing working-age populations, rising urbanization, and absorption of new technological advances (such as information and communication technologies) provide strong platforms for sustained growth. The buoyancy of growth in sub-Saharan Africa is mirrored in developing Asia and much of Latin America.

Box 1.1.Sub-Saharan Africa: Country Groupings1

Sub-Saharan Africa is a very diverse region, whether measured by population, income levels, or composition of output. In analyzing developments in the region, IMF staff have found it useful to decompose the 45 countries into four subgroupings:2

  • Oil exporters, where oil is sufficiently important as an export commodity that the evolution of world oil prices plays a key role in driving economic developments. Countries in this group are Angola, Cameroon, Chad, Equatorial Guinea, Gabon, Nigeria, and the Republic of Congo.
  • Middle-income countries, defined by reference to the World Bank’s classification of economies by per capita income level and institutional quality. It is useful on occasion to further decompose this group into those economies that have long been classified at middle-income levels and economies that have only recently reached the minimum per capita income threshold. South Africa is the dominant economy in the first subgroup, which also includes Botswana, Cape Verde, Lesotho, Mauritius, Namibia, Seychelles, and Swaziland; the second subgroup currently consists of Ghana, Senegal, and Zambia.
  • Fragile countries classified on the basis of a relatively low rating of institutional quality on the World Bank’s IDA Resource Allocation Index. They are treated as a distinct subgroup because economic developments can be heavily influenced by noneconomic events, including the outbreak of civil conflict or subsequent recovery. Currently in this group are Burundi, Central African Republic, Comoros, Democratic Republic of the Congo, Côte d’Ivoire, Eritrea, Guinea, Guinea-Bissau, Liberia, São Tomé and Príncipe, Togo, and Zimbabwe.
  • Non-fragile low-income countries, where economic developments can typically be explained by reference to more conventional economic factors. This group is Benin, Burkina Faso, Ethiopia, The Gambia, Kenya, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, Sierra Leone, Tanzania, and Uganda.

GNI per capita varies considerably across the four groups, with the middle-income group averaging almost U.S.$ 4,000 per capita in 2010, followed by the oil exporters at about U.S.$ 1,500 per capita. The GNI per capita levels in low-income countries and fragile states are similar, at about U.S.$400 and U.S.$500, respectively, with the slightly higher average among fragile states reflecting the inclusion of Côte d’Ivoire and São Tomé and Príncipe.

Figure 1.Sub-Saharan Africa: Gross National Income per Capita by Country Group, 2010

Source: World Bank, World Bank Development Indicators.

1 See the Statistical Appendix for a precise definition of the different country groupings.2 At this juncture, no macroeconomic data for South Sudan are available.

But the region’s recent sustained strong growth—specifically, among low-income economies—represents a sharp break with the past, when the region lagged far behind other parts of the developing world.

As discussed in past editions of this publication, the stronger growing countries of the region have exhibited a range of features that help explain this break with the past:

  • Macroeconomic and structural policy implementation improved substantially in the 2000s. Fiscal balances strengthened, inflation declined, reserve cover increased, and—helped in part by international debt relief initiatives—government debt ratios shrank (see Figure 1.4). Markets were liberalized and the environment for private business was improved—although there is much room for further reform in this area.
  • Capital spending—in both natural resource and other sectors—has risen substantially as a share of GDP over the last decade (Figure 1.5), reflecting in part an increase in the domestic savings rate. But the infrastructure deficit remains very wide in many countries, pointing to the scope for further boosting output and productivity levels through appropriately selected and effectively executed investment projects.
  • Institutional capacity continues to improve. While most indicators of good governance still show sub-Saharan Africa lagging behind the rest of the world, the region is making up ground in some aspects, including in regard to public voice and accountability. The economic impact of political violence and armed conflict has declined significantly over the past two decades, although security tensions still pose threats to growth in several countries.
  • While financial systems in most countries remain poorly developed relative to other regions, there has been significant financial deepening over the past decade, with domestic credit increasing as a ratio of GDP from around 14 percent in 2000 to above 20 percent in 2010 (Figure 1.6). While financial deepening, in part, results from sustained growth, it has also played a significant supporting role in the growth process.
  • There has been a steady increase during the past two decades in the growth rate of average labor productivity in the region, as measured by real GDP per adult—although the shortfall in productivity growth relative to Asian developing economies is still quite striking (Figure 1.7).
  • Favorable commodity price trends, driven by growing demand from Asia, and new resource discoveries have provided an important stimulus to growth in the 20 or so countries in which nonrenewable natural resources constitute a significant share of exports (see Chapter 3). But growth has also been strong in the many countries that, to date, have relied more on agricultural commodities, remittances, and foreign aid to bolster their balance of payments (for example, Ethiopia, Mozambique, and Rwanda).

Figure 1.4.Sub-Saharan Africa: Government Debt Ratios, 2000–11

Source: IMF, World Economic Indicators database.

Figure 1.5.Sub-Saharan Africa: Capital Investment, 2000–11

Source: IMF, World Economic Outlook database.

Figure 1.6.Sub-Saharan Africa Excluding South Africa: Credit to the Private Sector, 1995–2010

Sources: IMF, International Financial Statistics; and IMF, African Department database.

Figure 1.7.Selected Regions: Average Labor Productivity Growth, 1990–2009

Source: World Bank, World Development Indicators.

Aside from experiencing a solid pick-up in growth over the past decade, the region has shown strong cyclical resilience in the face of ongoing global financial turmoil since 2008 and the associated slowdown in global economic activity. Contributory factors include:

  • Financial systems in the region remain relatively insulated from global financial developments, with banks obtaining funding from strong domestic deposit bases rather than external sources (see Chapter 2). Few countries were significantly affected directly by disruptions to credit availability or capital flows during either the 2008–09 global financial crisis or during the latter half of 2011. Those countries affected by significant swings in capital flows used foreign reserves (Nigeria) or exchange rate adjustment (South Africa) as shock absorbers.
  • Fiscal policy in sub-Saharan Africa has remained supportive of growth since the 2009 global slowdown. Excluding oil exporters, the average overall fiscal deficit as a share of GDP rose by 3 percentage points in 2009. Around 0.5 percentage points of this increase is expected to have been rolled back by 2012. In other regions, fiscal policy has generally been consolidating since 2010.
  • Key commodity prices, including oil, have remained relatively strong since the rebound of prices in 2010, providing support to some commodity exporters.


A major theme in the October 2011 Regional Economic Outlook was the perceptible rise in inflation across the region, linked to the surge in global food and fuel prices in the first half of 2011. Inflation as of December 2011 was running at an average of 9¾ percent across the region, up from 7 percent a year earlier. The pick-up in inflation was distributed quite unevenly across the region, with East Africa being most severely affected: 12-month inflation in the East Africa Community (EAC) countries rose by almost 16 percentage points (to 20 percent) from end-2010 levels, with Ethiopia experiencing a surge from 15 percent to 36 percent over the same period. By contrast, some countries experienced only a modest uptick in inflation that quickly abated after global prices plateaued. Within WAEMU, for instance, 12-month inflation rates hardly rose above 5 percent and generally ended the year little different from where they started; while oil producers experienced a modest decline in inflation levels over the year, most notably in Angola.

Several factors determined this disparity in performance. As shown in Figure 1.8, food prices—which can constitute more than half of total household spending—were key in explaining increases in the consumer price index (CPI) in 2011. But the weights of food and beverages in CPI baskets—and hence the sensitivity to changes in food prices—differ markedly across the region. In addition, the rise in global food prices was not uniform across commodities—with the ensuing price shock to food importers dependent on the particular product imported. Finally, domestic supply conditions varied across the region, with drought conditions in some parts of the continent (including the Horn of Africa) intensifying price pressures, while good harvests in other subregions (including parts of Southern Africa) helping to limit price increases.

Figure 1.8.Sub-Saharan Africa: Consumer Price Index and Food Inflation, Average 2011

Sources: IMF, Information Notice System; IMF International Financial Statistics; and IMF, African Department database.

1 Includes all SSA countries whose exchange rate regime is not classified as either a conventional peg or a currency board, ranging from de facto crawling pegs to fully floating regimes, according to the IMF’s 2011 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER).

Box 1.2.Impact on WAEMU of the Recovery in Côte d’Ivoire and the Drought in the Sahel1

Economic growth in the West Africa Economic and Monetary Union (WAEMU) in 2011 was influenced by two major developments: (i) the political crisis in Côte d’Ivoire; and (ii) the drought in the Sahel.

After a decade of political instability and economic stagnation, Côte d’Ivoire experienced an armed conflict for several months in the aftermath of the November 2010 presidential election. While the conflict ended in April 2011, it had a severe impact: economic activity contracted sharply in early 2011, and, despite the subsequent recovery, annual GDP declined by an estimated 4.7 percent. Growth is expected to rebound to about 8 percent in 2012, and then to moderate to 6–6.5 percent in the medium term. With Côte d’Ivoire accounting for about 30 percent of WAEMU’s GDP, these gyrations have a major impact on regional growth (see Figure 1). Beyond this mechanical impact on regional aggregates, the recovery in Côte d’Ivoire will positively affect other countries in the region (especially landlocked WAEMU countries) through the resumption of trade, remittances, and investment. However, the large borrowing needs of Côte d’Ivoire may generate negative spillovers in the regional financial market. In spite of this, the recovery offers opportunities to accelerate regional integration within the WAEMU and the Economic Community of West African States (ECOWAS) in the medium term.

The recent drought severely affected Burkina Faso, Mali, Niger, and Senegal (WAEMU member countries), as well as Chad, The Gambia, and Mauritania. It is estimated that between 8 and 10 million people in these countries now experience food insecurity and require assistance. The humanitarian relief effort is being led by the World Food Program, which has estimated the eventual cost at around U.S.$800 million. Agricultural output of staple foods in the affected countries is estimated to have declined by around one-third, although the impact varied greatly across countries and crops. Most of the adverse effects of the drought on GDP were registered in 2011. Provided that key inputs for the planting season become available and agricultural production rebounds, the end of the drought should lead to higher regional growth in 2012. Nevertheless, the drought’s most acute effects on the population are being felt in 2012 through intensified levels of hunger and malnutrition. Food prices could also increase further before the next crops arrive. Overall fiscal deficits are likely to rise in 2012 in the affected countries, with increases in the order of at least 2 percent of GDP in Mali and 2–2½ percent of GDP in Gambia. Similarly, current account deficits are also expected to widen. Reflecting these factors, growth in the WAEMU was very low in 2011 (about 1 percent), but is expected to rebound sharply in 2012 (to about 6.5 percent), notwithstanding the weaker external environment.

Figure 1.West Africa: Real GDP Growth, 2010–13

Sources: IMF, World Economic Outlook database; and IMF, African Department database.

This box was prepared by Hervé Joly and Doris Ross.1 For more details, see the Staff Report for 2012 Regional Consultations with the WAEMU, available via the Internet at

With regard to the effects of rising world oil prices, differences in fuel price policies played a key role, with many countries (including in southern and eastern Africa) allowing full pass-through into domestic fuel prices, while other countries (including the oil producers and WAEMU countries) limited or prevented pass-through via fiscal measures (raising subsidies or reducing effective tax rates). These different structural features determined the varying direct impact on economies of the global price shocks—but they were only part of the inflation picture in 2011.

Equally important were the differences in the monetary policy response to the price shocks, which influenced the knock-on effects of the initial shock on other domestic prices and the exchange rate. In countries with formal exchange rate pegs, there was little evidence of such inflationary effects, even in cases where there was some modest effective exchange rate depreciation. In countries with formal inflation targeting regimes, such as South Africa, the inflation impact was limited to the first-round effects of the rise in import prices.

It was a different story, however, in some fast-growing countries with floating exchange rate regimes that had kept interest rates close to the low levels they reached during the global downturn. Strong credit growth already pointed to the prospect of inflationary pressures in these countries, and those that experienced strong food price pressures proved to be particularly vulnerable to knock-on effects. In several cases, exchange rates depreciated in response to the loose policy stance, further contributing to price pressures; inflation rates approached or exceeded 20 percent by the fourth quarter of 2011 in Burundi, Ethiopia, Kenya, Tanzania, and Uganda.

A tightening in monetary policy in most of these countries eventually broke the price spiral. As explored in Box 1.3, increases in policy interest rates and reserve requirements (tighter control of base money in the case of Ethiopia) bolstered exchange rates and took some of the pressure out of credit and product markets. Inflation rates have begun to ease, but remain elevated, most notably in Ethiopia, Tanzania, and Uganda, and will take some time (and appropriately tight monetary policy) to return to single-digit levels.

Further abatement of inflation is projected throughout the region in 2012. Important in this context is the assumption that relatively weak global growth will prevent a resurgence of commodity prices over the year—although rising oil prices in the first months of 2012, triggered in good part by supply concerns, point to some risk in this regard.

As shown by the abundance of countries to the right of the diagonal line in Figure 1.9.—which compares the projected fall in inflation through 2012 with the corresponding change in 2011—inflation rates in most countries are not expected to return to end-2010 levels soon. And even the modest improvement shown here assumes some firming of interest rates in countries where policy interest rates remain cyclically low.

Figure 1.9.Sub-Saharan Africa: Changes in CPI Inflation from 12 Months Earlier, End-2012 vs. End-2011

Sources: IMF, African Department database; IMF, Information Notice System; and IMF, International Financial Statistics.


Fiscal policy contributed to the generally accommodative policy climate in the region in 2011 (Figure 1.10). Although most oil exporters and MICs began to unwind the effects of the fiscal expansion implemented during the global crisis by reducing nonresource fiscal deficits, many low-income countries saw fiscal deficits continue to rise or slowly level off. There was little implied fiscal stimulus, but even these modest adverse movements in fiscal deficits were not in general warranted by countercyclical considerations. Fiscal deficits remain generally above debt-stabilizing levels.

Figure 1.10.Sub-Saharan Africa: Overall Fiscal Balance, 2004–12

Source: IMF, World Economic Outlook database.

Among oil exporters, the recovery in hydrocarbon-related and other tax revenue allowed some positive dynamics to emerge. Despite growth in government spending, non-oil fiscal deficits declined in all countries except Cameroon and Gabon (where national elections were taking place), and overall fiscal surpluses were the norm.

Box 1.3.East Africa: Persistence of the Food and Fuel Shock

This box explores the surging inflation in several countries in East Africa in 2011 (Figure 1). Recent analysis of East African countries shows that their food and nonfood domestic inflation is more susceptible to world food price shocks than elsewhere in sub-Saharan Africa.1 This may reflect differences in structural factors, such as the degree of self-sufficiency in food or the relative importance of administrative price controls. But larger second-round effects compared to other countries following food and nonfood price shocks point also to excessive monetary accommodation or demand pressures when the shocks occurred.

In 2011, food inflation peaked in Kenya (22 percent) and Ethiopia (52 percent), boosted in part by local food shortages in the wake of the drought in the Horn of Africa. Burundi, Tanzania, and Uganda also saw significant increases in food inflation. At the same time, consumer price inflation was also affected by higher nonfood inflation in Burundi, Kenya, Tanzania, and Uganda. Higher transportation costs associated with rising global prices of oil were particularly important in landlocked Burundi and Uganda, while power tariffs rose sharply in Tanzania.

Currency depreciation and monetary policy accommodation also played a role. Policy interest rates, which had been reduced to historically low levels during the global recession of 2009, were not increased significantly until late 2011, despite strong economic activity and rising inflation. Monetary aggregates in Burundi, Ethiopia, Kenya, Tanzania, and Uganda grew at rates in excess of 20 percent in the period preceding the spike in inflation.

To curb potential second-round effects, Burundi, Kenya, Tanzania, and Uganda hiked policy rates in late 2011, while Ethiopia squeezed the monetary base. Policy rates in Uganda rose by 17 percentage points during 2011, and Kenya increased policy rates during the last quarter by a cumulative 11 percentage points (Figure 2). Tanzanian monetary authorities tightened monetary policy in late 2011 by increasing reserve requirements and reducing net open positions. In response, broad money growth slowed in Kenya and Tanzania, and flattened out in Uganda, while exchange rates in Kenya, Tanzania, and Uganda appreciated and consumer price increases began to level off.

As a result of these policy measures, the outlook for inflation has improved, although the outlook for growth has deteriorated. Uganda’s growth forecast for 2012 has been revised down by ¾ percent since last October. Indeed, the central bank in Uganda has begun to ease interest rates from its recent high, although the continued momentum of inflation may require further monetary tightening in Ethiopia and Burundi. In general, tighter fiscal policies would help reduce the burden being placed on monetary policy and help sustain lower inflation in the region.

Figure 1.Eastern Africa: CPI Inflation, Jan. 2010-Dec. 2011

Sources: IMF, International Financial Statistics; and IMF African Department database.

Figure 2.Eastern Africa: Policy Interest Rates, Jan.-Dec. 2011

Sources: IMF, International Financial Statistics; and IMF African Department database.

This box was prepared by Jon Shields and Oral Williams.1 Stepanyan, Ara, forthcoming, 2012, “Second-Round Effects of Common versus Idiosyncratic Shocks of Food and Non-food Prices in sub-Saharan Africa,” International Monetary Fund.

Among middle-income countries there was also a more consistent picture of modest fiscal consolidation. Countries in this group were among those hardest hit by the global crisis, but in most cases they also had room for fiscal policy to help counteract the downturn. In more recent times, they have begun to withdraw fiscal stimuli. An exceptional case was that of Swaziland, where a decline in revenue from the Southern African Customs Union (SACU) has been a major driver of the fiscal deficit.

Among low-income and fragile countries, despite the deterioration of 1 percentage point of GDP in the overall fiscal balance in 2011, nearly as many countries saw deficits decline as rise. Overall fiscal deficits remained well under 5 percent of GDP in most cases. Furthermore, many widening deficits were associated either with bursts in government capital spending related to potentially high-yielding projects or with one-off events (post-election conflict in Côte d’Ivoire). Tax revenues in nonresource-exporting LICs returned to their recent long upward trend relative to GDP (Figure 1.11).

Figure 1.11.Sub-Saharan Africa Nonresource Exporting LICs: Total Revenue, Excluding Grants, 2000–12

Source: IMF, World Economic Outlook database.

A similar mixed picture is expected in 2012. While fiscal buffers will still mostly be smaller than in 2004–08 (a weaker average fiscal balance for the region of about 3 percentage points of GDP), there is likely to be some fiscal consolidation in about one-half of low-income and fragile countries relative to 2011. In many cases this consolidation will reverse the expansion of 2011, supported by the slowing, or at least plateauing, of spending growth that began during the global downturn, with revenue improvements also playing an important role in some cases. Similar consolidation processes are expected among the MICs. For oil exporters, the patterns of 2011 will largely be repeated.

Significant differences exist among low-income countries. In many countries where deficits are expected to widen, large new capital investments (particularly in infrastructure) are again expected to account for much of the change, as is the case in Ethiopia, Tanzania, and Rwanda.


Most countries in sub-Saharan Africa benefited from the recovery in export demand that followed the 2009 downturn and the surge in commodity prices in 2010 and early 2011. Nevertheless, with the pause in world trade growth in the second half of 2011, and further anticipated weakness this year, the impulse to economic activity provided by exports is expected to soften in 2012. This is likely to be most evident in MICs, reflecting in particular South Africa’s dependence on manufactured as well as commodity exports and Botswana’s reliance on diamond exports. However, with the euro area now buying less than one-fifth of sub-Saharan African exports—and China and other emerging markets becoming major destinations for the region’s output—low-income and fragile economies are better placed to ride out a euro area-centered slowdown in global trade flows, but are still vulnerable to a broad-base decline in world trade (Figure 1.12).

Figure 1.12.Sub-Saharan Africa: Total Exports Shares by Partner

Source: IMF, Direction of Trade Statistics.

1 Oil-exporting countries include Angola, Cameroon, Chad, Republic of Congo, Equatorial Guinea, Gabon, and Nigeria.

Among low-income and fragile countries, two major trends are prevalent. For a few producers of nonrenewable natural resources—notably Liberia, Madagascar, Niger, and Sierra Leone—the exploitation of new mining developments (as well as oil in the case of Niger) will provide major boosts to exports, adding nearly 3 percentage points to the group’s total export volume growth in 2012 and nearly 1 percentage point to GDP growth. Elsewhere, exports will broadly follow world trends.

For most non-oil countries in sub-Saharan Africa, with terms of trade expected to decline from their high 2011 levels, the growth of imports in 2012 is generally expected to exceed that of exports. Reflecting also the stability of remittances in nominal terms since 2007—despite the volatile economic environment in which migrants have been working, inside and outside sub-Saharan Africa—a small deterioration is expected in the current account position of middle- and low-income countries overall. Offsetting this is a modest improvement in the surpluses of oil exporters, augmenting the significant improvement recorded in 2011 (Figure 1.13).

Figure 1.13.Sub-Saharan Africa: External Current Account Balance, 2004–12

Sources: IMF, World Economic Outlook; and IMF, African Department database.

Mauritius, Nigeria, South Africa, and a few natural resource producers (Ghana, Zambia, Zimbabwe) continued to attract sizable portfolio inflows as investors in advanced countries and emerging markets extended their search for higher returns. But interest in other frontier markets in sub-Saharan Africa has remained well below precrisis levels, perhaps continuing to reflect the lack of high interest rate opportunities and exchange rate volatility (IMF, 2011, Chapter 2). A promising sign, nonetheless, is the increasing number of investor funds focused on sub-Saharan Africa.


Recent estimates by the World Bank confirm that the declining trend in the headcount poverty index since the mid-1990s continued into the latter part of the 2000s. Measured on the basis of a poverty line of US$1.25 a day in 2005 prices, the estimated proportion of the region’s population living in poverty fell from 56.5 percent in 1990 to 47.5 percent in 2008. But the region is lagging significantly in terms of making progress toward achieving the first Millennium Development Goal (MDG) of halving poverty rates, and it remains, by a significant margin, the region of the world with the highest incidence of poverty (Figure 1.14). Based on the progress made in recent years in reducing poverty, sub-Saharan Africa, along with South Asia, is not now expected to meet the 2015 MDG target.

Figure 1.14.Sub-Saharan Africa: Headcount Poverty Index Using the $1.25 a Day Poverty Line

Source: World Bank, World Development Indicators.


Our key assumption thus far has been that world economic growth in 2012 will slow moderately, with only a mild pick-up expected through 2013 (Table 1.1 and Figure 1.2).4 There are significant downside risks to this scenario, with immediate threats including renewed escalation of the euro area crisis and a potential surge in oil prices stemming from heightened geopolitical uncertainties. Either of these developments would have significant adverse effects on sub-Saharan Africa.

The April 2012 World Economic Outlook (WEO) envisages some further slowing of global growth (year-on-year) in 2012, with weaknesses concentrated in the advanced economies. There are, however, significant uncertainties around this baseline. The associated risk profile for output growth in sub-Saharan Africa in Figure 1.15 shows solid output growth in 2012 appears highly likely, but some slowing in the pace of growth relative to 2011 cannot be ruled out. To gain a better understanding of the downside risks, we consider two specific scenarios involving adverse global shocks.

Figure 1.15.Sub-Saharan Africa: Growth Prospects, 2012 and 2013

Sources: IMF, World Economic Outlook database; IMF African Department database; and IMF staff estimates.

Intensified stresses in the euro area

The first “downside” scenario is one in which financial stresses in Europe intensify significantly, driven by a tightening of bank credit and sharpened concerns over government finances and the quality of bank assets. This would, in turn, yield a significant contraction in output in the euro area, with knock-on effects on other parts of the global economy. The specific scenario explored in the WEO would result in global output falling (relative to the baseline projection) by about 2 percent by 2013, resulting in declines in oil and non-oil commodity prices of 17 percent and 10 percent, respectively.5

What would this mean for sub-Saharan Africa?

  • Because most financial sectors are relatively insulated from global financial markets, spillovers from the global economy would be transmitted primarily through declines in exports, tourism, direct investment, remittances, and, over time, aid flows.
  • Two assessments of the effects of this global economic weakening on sub-Saharan Africa—one based on the IMF’s global economic model, a second based on a bottom-up assessment of the likely impact on a group of the larger economies in sub-Saharan Africa—yield similar conclusions: output growth in the region would be 0.5-0.6 percentage points lower in both 2012 and 2013. The effects would, however, differ significantly across country groupings.
  • The slowing of growth would be more significant (around 0.7 percentage points in each year) in South Africa, where exports would be significantly affected by the contraction of demand in Europe. Any direct impact on the financial sector would be modest, although swings in capital flows (and weak exports) would affect the rand. The slowdown in South Africa would spill over to the other members of the South African Customs Union, possibly with a lag.
  • Notwithstanding weaker oil prices, the major oil exporters would likely see only marginal effects on non-oil output, with the main effect of the shocks being smaller accumulation of foreign reserves. Budgets for 2012 have, in the main, been framed on conservative oil price assumptions, so budget outlays should not be derailed by the envisaged oil price decline. Countries with weaker reserve positions could experience speculative capital outflows. Only in Cameroon—where non-oil exports to Europe are important—is growth likely to slow noticeably (by some 0.5 percentage points in each year).
  • The projected impact on low-income countries is sensitive to country circumstances. Kenya’s merchandise exports and tourist receipts rely significantly on European exports, so growth could slow quite significantly (at least 0.5 percentage points) in both 2012 and 2013. Ethiopia would be only modestly affected, provided that remittances and service exports prove as resilient as in 2009; the favorable effect of lower oil prices would dominate any losses in merchandise exports. The outlook would, however, be less benign if aid flows, also an important source of foreign exchange, were to come under pressure.
  • Ghana, an emerging oil producer, would experience shocks to exports, although gold prices would likely remain robust in this scenario and cocoa export prices have been hedged through 2012. But there would also be adverse effects on capital flows, with the exit of foreign investors from the government securities market and some squeeze on direct investment, as financing from European banks dries up. In the aggregate, growth losses on the order of 0.5 percentage points each year are plausible. Growth in the DRC could be lower in 2012 by a similar amount, should lower commodity prices and financing constraints discourage foreign investment in the natural resource sector.

The expected impact on other sub-Saharan African economies in a “euro-area crisis” scenario would vary quite widely, but the cases discussed above point to the key drivers: reliance on European markets for noncommodity exports (including tourism); the size of foreign reserve buffers; some offsetting benefits for oil importers from a decline in world oil prices; the robustness of remittances; and the importance of foreign portfolio flows. Any adverse shock to aid flows would have significant effects in aid-reliant countries, such as Burundi, Ethiopia, Malawi, and Rwanda.

An oil price surge

The second “shock” scenario we consider is a surge in world oil prices driven by geopolitical tensions. It is useful to distinguish between two cases: a moderate shock (a 20 percent increase in oil prices in 2012–13, as compared to current projections, with limited impact on global output) and a severe shock of the type considered in the April 2012 World Economic Outlook (50–60 percent jump, with an ensuing global output drop of 1¼ percent relative to the WEO baseline).

Considering first the moderate-shock scenario, the impact on individual sub-Saharan economies is, of course, dependent on whether the country is an oil exporter or importer:

Box 1.4.Growth Dynamics in the SACU Region in the Aftermath of the Financial Crisis1

For several years, GDP growth of SACU members has been lower than elsewhere in sub-Saharan Africa (Figure 1). Growth rates in the SACU show a fair amount of correlation across countries, reflecting both the exposure to common external shocks, and the transmission of shocks within the region, which is influenced by the union’s revenue sharing rules.

After a solid rebound in 2010, real GDP growth in South Africa has remained at around 3 percent, supported by private and public consumption. Unemployment, which rose to around 25 percent during the crisis, is only now edging down. Growth has been hampered by the slow recovery in exports and private investment (Figure 2), partly reflecting weakness in Europe (South Africa’s main trading partner) and a decline in the country’s external competitiveness (due to rising domestic costs). Strikes in mining and manufacturing also affected output in 2011.

Given the weak external environment, South African GDP growth is projected at 2½–3 percent in 2012, gradually rising to 3½–4 percent in the medium term. This path will affect other SACU members (with some lag) through its impact on payments. Individual country outlooks in the region will also be affected by country-specific circumstances:

Figure 1.Real GDP Growth in Sub-Saharan Africa and the SACU Region

Source: IMF, World Economic Outlook database.

Figure 2.South Africa: Exports Volume, Private Investment, and Employment

Source: Country authorities.

  • GDP growth in Botswana and Namibia bounced back strongly in 2010 to 6½–7 percent, as a result of a recovery in external demand for mineral products. In Botswana, growth has since slowed, reflecting both some easing of demand for diamonds (the key export) and supply bottlenecks. In Namibia, output expansion in 2011 was adversely affected by severe flooding, affecting both agriculture and mining. Given external conditions, growth in both countries is projected at around 3–4 percent in 2012.
  • Swaziland was severely affected in 2011 by a sharp fall-off in SACU revenue-sharing payments (a lagged response to recession in South Africa in 2009), undermining the already stretched fiscal situation and contributing to the emergence of large domestic arrears. Against a backdrop of continued fiscal stresses, GDP is expected to decline by 2.7 percent in 2012.
  • Lesotho also saw a drop-off in SACU receipts in 2010–11, prompting a sizable fiscal adjustment, but growth has remained robust, bolstered by expanding diamond production and the initiation of major infrastructure projects. GDP is expected to rise by 5 percent in 2012–13.
This box was prepared by Nir Klein.1 The South African Customs Union (SACU) includes Botswana, Lesotho, Namibia, South Africa, and Swaziland; the customs revenue collected by the Union is shared among the five member states in a manner that is not closely aligned with economic size, providing substantial revenues (relative to GDP) to the smaller economies.

Box 1.5.Sub-Saharan Africa’s Exposure through Trade to the Economic Slowdown in the Euro Area

The contraction of economic activity in Europe has so far had a limited impact on growth in most of sub-Saharan Africa, with South Africa as a significant exception. Provided that commodity prices remain at relatively high levels, exports from sub-Saharan Africa are not expected to decline sharply. If the slowdown in Europe induced much lower global growth, then the negative impact on commodity prices would likely be much higher. While Europe continues to be sub-Saharan Africa’s main trading partner (accounting for approximately 30 percent of the region’s merchandise exports over the 2000–10 period), there are two reasons why most countries in sub-Saharan Africa are not as directly exposed to the economic slowdown in Europe through trade as they were in the past or relative to other regions.

First, as shown in Figure 1.12 of the main text, most countries in sub-Saharan Africa have diversified their exports away from Europe and toward emerging markets as well as intraregional trade. Merchandise exports from sub-Saharan Africa to the European Union as a share of total exports decreased from 33 percent over the 1995–2004 period to 26 percent over the 2005–10 period. This implies that the same decrease in exports to Europe would have a lower impact on growth in the region, and that exporting to other regions with higher growth (including within Africa) is a source of added strength.

Second, while exports account on average for about 36 percent of GDP over the 2000–10 period, 80 percent of these exports are commodities. Given that the contribution to commodity exports growth from the rest of the world has been higher than from Europe (Figure 1), the deceleration of export growth to Europe will have a limited impact on sub-Saharan Africa.

In fact, sub-Saharan Africa is the region with the highest reliance on primary commodity exports after the Middle East and North Africa, as shown by the low levels of manufactures exports as a share of GDP (Figure 2). Thus, a decline in noncommodity exports would have a limited impact on most countries in the region.

Figure 1.Sub-Saharan Africa: Average Contribution to Commodity Export Growth by Destination

Source: IMF staff calculations based on data from United Nations Conference on Trade and Development.

Figure 2.Selected Regions: Manufactures Exports

Source: IMF staff calculations based on data from World Bank, World Development Indicators.

This box was prepared by Rodrigo Garcia-Verdu.
  • For oil exporters, the price jump would provide sizable windfall revenues to national budgets (as in 2008), with the impact on the national economy depending very much on the policy response (“spend” or “save”).6 If windfall revenues are saved (in the form of higher foreign reserves), the short-term impact on growth would be limited, concentrated in the oil sector and those sub-sectors from which it buys inputs.7 Were these revenues to be spent, there would be a short-term surge in both growth and inflation—with the longer-term impact dependent on the extent to which new spending is focused on productive capital investment.
  • For oil importers, the effects of the price shock would depend both on fuel-pricing policy and any ensuing monetary policy response:
    • In southern Africa and East Africa, where pass-through of import price increases to retail prices is the norm, the first-round effects of the price shock would likely be accommodated, with central banks tightening policy only to prevent a more generalized increase in inflation. IMF country teams’ analyses suggest adverse growth effects on the order of 0.3–0.5 percentage points in both 2012 and 2013, with additional inflation of some 2–4 percentage points spread over two years.8
    • West Africa would likely seek to shield domestic consumers from the effects of the fuel price increases, implying minimal direct impact on inflation but at the cost of widening fiscal deficits (on the order of 1–1½ percent of GDP) and current account deficits.9

The severe-shock scenario would, of course, have a much larger impact on national economies, given the adverse shock to global output (and hence demand for African exports). The broad outlines of the impact would be along the lines sketched above, but with proportionally larger real income shocks in oil importing countries and a decline of non-oil exports in all countries. The adverse impact on growth and inflation in southern and East Africa would, of course, be much greater, with the monetary policy response a key influence on outcomes. The surge of fiscal and external deficits in western African economies favoring tight control of retail fuel prices would be large, requiring some mix of foreign reserve depletion, increased foreign borrowing (assuming availability), and almost certainly some fuel price adjustments to limit borrowing needs.

Homegrown risks to the outlook

Not all risks stem from the uncertain global environment. Key domestic risk factors include: (i) rising internal tensions, most strikingly in Mali but also in several Sahel countries and, more generally, in countries where growth is either sluggish or noninclusive; (ii) political tensions linked to elections and possible transfers of power; and, as always, (iii) climatic shocks.


The economies of sub-Saharan Africa are, for the most part, expected to record solid growth in 2012 and beyond. With fiscal deficits well above precrisis levels in most oil-importing countries, and above debt-stabilizing levels in many of these countries, there is a good case for some fiscal consolidation in most low-income countries—to rebuild fiscal buffers, enhance the capacity to manage adverse shocks, and contain debt accumulation. The case for adjustment is not compelling in countries where growth remains weak, or where vulnerability to developments in Europe poses a threat to growth. But demand management is only one factor to weigh in setting policies: the adequacy of foreign reserves, the pace of debt accumulation, and the scale and quality of public investment are also key in assessing budgetary policy choices. Countries with significant monetary policy autonomy—about half of sub-Saharan Africa—have an additional, more flexible tool to deploy for macroeconomic management, but in several countries monetary policy will need to focus primarily on reducing sharply elevated inflation rates.

Policymakers in sub-Saharan Africa continue to confront an unusually uncertain external environment, with the global pace of economic recovery having slowed and with potential trouble spots ahead. Contingency planning in the fiscal area is warranted, most importantly in countries where adjustments of exchange rates and interest rates are not options for national policymakers. Given the variation in country circumstances, there are no “one-size-fits-all” policy prescriptions, but some general guidelines can be specified:

  • In countries where fiscal deficits are above debt-stabilizing levels, where fiscal policy buffers (including borrowing capacity) are limited, and where growth is likely to remain robust, there are good grounds for consolidation measures to strengthen the fiscal position over time. Unless downside risks materialize, 2012 is not “the rainy day” for which ongoing fiscal stimulus is needed, but rather a period during which fiscal positions should be strengthened.
  • By contrast, in countries where output is below trend levels and growth is slowing, or where exposure to euro area developments is significant, substantial fiscal tightening—further reducing demand—would be inappropriate at this juncture. Nevertheless, as in advanced countries, credible medium-term adjustment plans are needed if rising public debt levels are becoming a concern. Accommodative monetary policy offers the best route to support economic activity for such countries, given that inflation is adequately contained.
  • For the countries that experienced large jumps in inflation rates during 2011, eventually triggering a significant tightening of monetary policy, reducing inflation to “normal” levels should remain a key priority. Monetary policy should only be adjusted on the basis of clear progress toward inflation objectives.
  • Contingency plans should be developed to allow appropriate responses to adverse shifts in the global economy. Absent monetary/exchange rate tools, the focus has to be on designing temporary fiscal measures that could support demand (in countries where automatic stabilizers are weak and governments have borrowing space) and on improving targeted social safety nets to pave the way for pass-through of oil price shocks into domestic prices. Where available, monetary policy can be adjusted speedily to respond to adverse external shocks.

Oil exporters

For most oil exporters, the growth outlook is favorable, even with a weakening of oil prices; foreign reserve buffers need rebuilding, notably in Nigeria, implying a need to save oil revenues (via fiscal surpluses). That said, large infrastructure gaps in most countries (for example, Angola) argue for increased public investment, provided that projects can be appropriately designed and effectively executed without straining domestic capacity. Each country will have to find its own appropriate mix of reserve accumulation balanced against judicious additional public investment.

It is noteworthy that both Angola and Nigeria are targeting reductions in non-oil balances in 2012, facilitating reserve accumulation, while seeking to shift the composition of public spending toward investment (in physical and human capital). Cameroon seeks to follow this path but an underestimation of the cost of fuel subsidies and uncertainty regarding the capacity of the regional market to absorb the planned securities issuance could result in sizable budgetary arrears. Fiscal policy in Equatorial Guinea and the Republic of Congo aims at scaling up investment to close the infrastructure gap, although weak public financial management is hindering implementation effectiveness.

Middle-income countries

In South Africa, a significant output gap and slow growth, with initially moderate public debt levels, have justified significant fiscal easing since the onset of the 2008–09 global recession; monetary policy, operating within an inflation targeting regime, has also been accommodating. Given the projected weakening of growth, with vulnerability to Europe an important risk factor, continuation of this policy mix is warranted in 2012—but fiscal consolidation will be needed over the medium term to halt the debt build-up.

Among the smaller middle-income countries, there is scope for fiscal tightening this year, absent a strong shock to external demand, with sizable adjustment an imperative in Swaziland, while in Botswana fiscal adjustment is already underway.

Among the recent arrivals in the lower middle-income group, continued growth in both Senegal and Zambia provides room for fiscal tightening; the fiscal deficit is well above sustainable levels in Senegal, while there is a need to rebuild fiscal and foreign reserve buffers in Zambia. In Ghana, where non-oil sector growth is strong and inflation has eased, there is also a need to rebuild weakened fiscal and reserve buffers.

Low-income countries

Sub-Saharan Africa’s low-income and fragile countries constitute a diverse group, with the drivers of economic growth differing significantly across countries. New natural resource exploitation is driving dramatic growth surges in Niger and Sierra Leone, political events are influencing economic developments in several countries (such as Côte d’Ivoire, Mali, and Madagascar), while sizable concessional aid inflows are providing financing for appropriately large fiscal deficits in other countries (such as Mozambique, São Tomé and Príncipe, and Tanzania). Severe infrastructure gaps in most cases provide an argument for high levels of public investment, financed by external borrowings where sufficient domestic savings cannot be mobilized. Nevertheless, weak implementation and absorption capacities caution against “big pushes” that can result in wasted resources and renewed debt burdens. Against this background, macroeconomic policy assessments require careful consideration of individual country situations—including, in fragile states, taking explicit account of measures needed to reinforce internal stability.

In most countries in the EAC, returning inflation rates to single-digits from the elevated levels reached in 2011 is an overarching priority (Box 1.3): monetary policy has been sharply tightened, with gradual easing being called for only when achievement of this objective is credibly assured. Inflation remains a significant problem also in Guinea (a hangover from economic mismanagement under military rule in 2009–10) and Sierra Leone (reflecting fiscal slippages that created intense monetization pressures on the central bank). Tight fiscal policy will be key to containing monetary growth and, by extension, lowering inflation.

In Côte d’Ivoire, policies are framed around the twin objectives of facilitating economic recovery and managing the social impact of the post-election crisis: fiscal deficits are sharply higher in 2011–12 to accommodate these objectives, financed in good part through external support in 2011 and debt issuance on the regional (WAEMU) market in 2012, with price stability being assured via participation in the WAEMU currency union. In Liberia, budgetary policies were organized around the principle of balanced cash budgets until the achievement of the HIPC Completion Point in June 2010; since then, modest deficits have emerged, in good part reflecting the shift by development partners from grant-based aid (above the line) to long-term concessional loans (below-the-line). Higher deficits would be justified to accommodate well-designed, high-return investment projects, most notably in electricity generation.

Ethiopia has recorded rapid economic growth over an extended period, fueled in part by heavy public investment in infrastructure. The sustainability of this growth model over the medium term is uncertain, given the constraints on private sector development, the absence of savings incentives (given highly negative real interest rates), and the contraction, in relation to GDP, of the banking system. Financial sector reforms, including movement towards market-driven credit allocation, are an important priority.

Countries requiring fundamental policy adjustments

In some countries, more fundamental policy adjustments are needed to improve or sustain growth and reduce macroeconomic imbalances. In Eritrea, comprehensive reforms are needed to set its economy on a strong, sustained growth trajectory, including internal market liberalization, exchange rate adjustment, and greater openness to international trade. In Malawi, the economy has slowed, as an overvalued exchange rate, coupled with de facto rationing of foreign exchange, has created increasing economic disruption: the main policy imperative is liberalization of the foreign exchange market, supported by appropriately tight monetary and fiscal policies to contain inflation. In Swaziland, substantial fiscal retrenchment, including reducing an exceptionally high public wage bill, is essential to align spending levels with average revenue levels (which are volatile from year to year, given fluctuations in the SACU revenue pool).

In Zimbabwe, firm measures are needed to prevent the public sector wage bill from crowding out other priority outlays, and policy uncertainty needs to be reduced if nonmineral growth is to be sustained. Zimbabwe’s large debt overhang remains a serious impediment to medium-term fiscal and external sustainability, and will need to be addressed as part of a comprehensive arrears clearance framework.


The focus in this chapter has been on the near-term economic outlook and the associated implications for macroeconomic policies—a focus warranted by the difficult and uncertain international economic situation. Sound macroeconomic policies can deliver only an enabling environment for economic development—which needs to be supplemented by a capable state apparatus, delivering essential services (such as security) and high levels of well-executed public investment in infrastructure and human capital, financing itself through sensibly designed taxation policies, and providing a business environment, including an efficient and stable financial system, that is supportive of private sector activity. A broadly stable political environment is, of course, a fundamental requirement for growth—with the track record of countries at one time wracked by civil strife underscoring that political stability can best be maintained if growth is both sustained and inclusive. The historical experience has made it clear that this circular linkage can be virtuous or vicious, depending on how it is managed.

Significant strides have been made in sub-Saharan Africa over the past decade in improving both the capacity of the state (including its financing via revenue mobilization) and the environment for private sector activity. Further progress in both areas will be needed if the strong growth over the past 10–15 years, which was assisted by strong global demand for Africa’s natural resources, is to be sustained and become more broad-based in the years ahead.

This chapter was prepared by Rodrigo Garcia-Verdu, Maitland MacFarlan, Sean Nolan, and Jon Shields. Research assistance was provided by Cleary Haines and Luiz Oliveira, editorial assistance by Jenny Kletzin DiBiase; and administrative assistance by Natasha Minges and Anne O’Donoghue.


Unless otherwise stated, data for the region and sub-groups are expressed as weighted averages of country data, with weights reflecting each country’s GDP in the relevant year valued at purchasing power parity.


See Box 1.1 for definitions of the analytical sub-groupings of countries used in this chapter.


An exception in this group is The Gambia, which is expected to experienced the heaviest agricultural losses among those countries in West Africa affected by the drought (see Box 1.2).


For further discussion of the global outlook, see the IMF’s World Economic Outlook, April 2012.


Were these events to be accompanied by a sharp generalized increase in global risk aversion, the impact on the global economy and, by extension, sub-Saharan Africa would be more marked.


See Chapter 3 for discussion on past experience regarding the use of revenue windfalls.


Consumer price inflation would likely be little affected, given the propensity of most oil producers in sub-Saharan Africa to limit pass-through of rising world fuel prices into domestic retail prices.


In countries with floating exchange rates (such as South Africa and the large EAC countries), exchange rate depreciation would be part of the adjustment process.


Preventing the pass-through of oil price increases to consumers, while appearing to contain inflation, is typically a poor policy choice, transferring the burden from fuel consumers to the general tax-payer (a move favoring the better off) and creating significant economic distortions.

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