In order for Nigeria and other economies in Africa to harness their strong potential, the International Monetary Fund (IMF) has stressed the “critical need” for a substantial policy reset by policy makers in the countries, adding that their response to date has generally been insufficient.
The IMF stated this in its latest Regional Economic Outlook for sub-Saharan Africa released on Tuesday.
The report showed that growth fell to three and a half per cent in 2015 in sub-Saharan Africa, the lowest level in 15 years, and growth this year was expected to slow further to three per cent, well below the six per cent average over the last decade, and barely above population growth.
According to the multilateral donor institution, in commodity exporting countries such as Nigeria, where fiscal and foreign reserves are depleting rapidly and financing is constrained, the response to the shock needs to be prompt and robust to prevent a disorderly adjustment.
In addition, it advised countries outside monetary unions to use exchange rate flexibility, as part of a wider macroeconomic policy package, to absorb the shock.
“As revenue from the extractive sector is likely durably reduced, many affected countries also critically need to contain fiscal deficits and build a sustainable tax base from the rest of the economy.
“Given the substantially tighter external financing environment, market access, countries with elevated fiscal and current account deficits will also need to recalibrate their fiscal policies to rebuild scarce buffers and mitigate vulnerabilities if external conditions worsen further.
“The required measures may come at the cost of lower growth in the short-term. However, they will prevent what could otherwise be a significantly more costly disorderly adjustment.
“These policies would lay the ground work needed for the region to reap the substantial economic potential which still lies ahead,” it advised.
In two background studies, the Regional Economic Outlook also examined the current commodity terms-of-trade shock and policy responses against past downswings, and the economic impact of progress made in financial development.
“The region has made strides in broadening access to financial services through the use of mobile technology, and the expansion of home-grown pan-African banks,” the report said.
It noted that after a prolonged period of strong economic growth, sub-Saharan Africa was set to experience a second difficult year as the region is hit by multiple shocks.
The steep decline in commodity prices and tighter financing conditions, the IMF said, had put many large economies under severe strain, just as it called for a stronger policy response to counter the effect of these shocks and secure the region’s growth potential.
“The commodity price slump has hit many of the largest sub-Saharan African economies hard. While oil prices have recovered somewhat compared to the beginning of the year, they are still more than 60 per cent below 2013 peak levels— which is a shock of unprecedented magnitude.
“As a result, oil exporters such as Nigeria, Angola, and five of the six countries within the Central African Economic and Monetary Community continue to face particularly difficult economic conditions.
“The decline in commodity prices has also hurt non-energy commodity exporters, such as Ghana, South Africa, and Zambia.
“Compounding this shock, external financing conditions for most of the region’s frontier markets have tightened substantially compared to the period until mid-2014 when they enjoyed wide access to global capital markets.
“However, the impact of these shocks varies significantly across the region and many countries continue to register robust growth, including in per capita terms. While the immediate outlook for many sub-Saharan African countries remains difficult, the region’s medium-term growth prospects are still favourable.
“The underlying domestic drivers of growth at play over the last decade generally continue to be in place. In particular, the region’s much improved business environment and favourable demographics should help bolster growth in the medium term,” the IMF said in the report