World Bank Cuts Sub-Saharan Africa Growth Forecast To 2.5%

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World bank

Growth in Sub-Saharan Africa remained slow through 2019, hampered by persistent uncertainty in the global economy and the slow pace of domestic reforms, according to the 20th edition of Africa’s Pulse, the World Bank’s twice-yearly economic update for the region.

Overall growth in Sub-Saharan Africa is projected to rise to 2.6 percent in 2019 from 2.5 percent in 2018, which is 0.2 percentage points lower than the April forecast. This edition of Africa’s Pulse includes special sections on accelerating poverty reduction and promoting women’s empowerment.

The World Bank said the recovery in Nigeria, South Africa, and Angola-the region’s three largest economies-has remained weak and is weighing on the region’s prospects. In Nigeria, growth in the non-oil sector has been sluggish, while in Angola the oil sector remained weak. In South Africa, low investment sentiment is weighing on economic activity.

Excluding Nigeria, South Africa and Angola, the Group said growth in the rest of the subcontinent is expected to remain robust although slower in some countries. The average growth among non-resource-intensive countries is projected to edge down, reflecting the effects of tropical cyclones in Mozambique and Zimbabwe, political uncertainty in Sudan, weaker agricultural exports in Kenya, and fiscal consolidation in Senegal.

In Central African Economic and Monetary Community countries, which are also resource-intensive, activity is expected to expand at a modest pace, supported by rising oil production. Growth among metals exporters is expected to moderate, as mining production slows and metal prices fall.

“Empowering women will help boost growth. African policy makers face an important choice: business as usual or deliberate steps toward a more inclusive economy,” said Hafez Ghanem, World Bank Vice President for Africa. “After several years of slower-than-expected growth, closing the opportunity gap for women by removing barriers to their economic participation is the best way forward.”

Special Topics: Accelerating Poverty Reduction and Empowering Women

Four in 10 Africans, or over 416 million people, lived below $1.90 per day in 2015. Absent significant efforts to create economic opportunities and reduce risk for poor people, extreme poverty will become almost exclusively an African phenomenon by 2030.

Meanwhile, the International Monetary Fund (IMF) has advised the Nigerian government urgently to put up “a comprehensive package of measures” — whose design and implementation will require close coordination within the economic team and the newly-appointed Economic Advisory Council of President Muhammadu Buhari to reduce vulnerabilities and raise growth.

The fund also said the “increasing CBN financing of the government reinforces the need for an ambitious revenue-based fiscal consolidation that should build on the initiatives laid out in the Strategic Revenue Growth Initiative.”

IMF said a tight monetary policy should be maintained through more conventional tools. It said managing vulnerabilities arising from large amounts of maturing CBN bills—including those held by non-residents—requires stopping direct central bank interventions, the introduction of longer-term government instruments to mop up excess liquidity and moving towards a uniform market-determined exchange rate.

Nigeria’s gross international reserves have fallen to below $42 billion at end-August 2019, mainly reflecting a decline in foreign holdings of short-term securities and equity. The exchange rate in various windows remained stable, helped by steady sales of foreign exchange by the central bank.

The fund added that revenue initiatives planned under the 2020 budget—including a Value Added Tax (VAT) reform that increases the rate, introduces a minimum registration threshold and exempts basic food products—will help partially offset declining oil revenues and the impact of higher minimum wages, thus keeping the overall consolidated fiscal deficit elevated.

The IMF has said Nigeria’s inflation rate is expected to rise next year in response to increased wages and value added tax (VAT) as it said the economy faces challenging times in the face of the current government policies.

The Fund in its staff report on Nigeria released on Tuesday night, noted that while the country’s economy has maintained a slow growth, it is expected to pick up at 2.3 per cent this year. The report states: “The pace of economic recovery remains slow, as depressed private consumption and investors’ wait-and-see attitude kept growth in the first half of the year at two percent, a rate significantly below population growth.

“Carryover from 2018 to 2019 helped increase public investment spending in the first half of 2019, but revenue under performed significantly relative to the budget target in the first half of 2019. Over-optimistic revenue projections have led to higher financing needs than initially envisaged, resulting in over reliance on expensive borrowing from the CBN to finance the fiscal deficit. Federal government interest payments continue to absorb more than half of revenues in 2019.

“The outlook under current policies remains challenging. Growth is expected to pick up to 2.3 percent this year on the strength of a continuing recovery in the oil sector and the regaining of momentum in agriculture following a good harvest.

“Revenue initiatives planned under the 2020 budget—including a VAT reform that increases the rate, introduces a minimum registration threshold and exempts basic food products—will help partially offset declining oil revenues and the impact of higher minimum wages, thus keeping the overall consolidated fiscal deficit elevated.

“The current account’s shift to a deficit is expected to persist while the pace of capital outflows continues to weigh on international reserves. Inflation will likely pick up in 2020 following rising minimum wages and a higher VAT rate, despite a tight monetary policy.

“Headline inflation has fallen, reaching its lowest level since January 2016, helped by lower food price inflation. Spurred by one-off increases in imports, the current account turned into a deficit in the first half of 2019 after three years of surpluses.’’

It also cautioned on the impact of the latest lending policies initiated by the Central Bank of Nigeria (CBN) saying “banking sector prudential ratios are improving. However, new regulations to spur lending—which has recently increased—should be carefully assessed and may need to be revisited in view of the potential unintended consequences on banks’ asset quality, maturity structure, prudential buffers and the inflation target.

Continued strengthening of banks’ capital buffers would enhance banking sector resilience. The increasing CBN financing of the government reinforces the need for an ambitious revenue-based fiscal consolidation that should build on the initiatives laid out in the Strategic Revenue Growth Initiative. A tight monetary policy should be maintained through more conventional tools.

“Managing vulnerabilities arising from large amounts of maturing CBN bills—including those held by non-residents—requires stopping direct central bank interventions, the introduction of longer-term government instruments to mop up excess liquidity and moving towards a uniform market-determined exchange rate.

“Gross international reserves have fallen to below $42 billion at end-August 2019, mainly reflecting a decline in foreign holdings of short-term securities and equity. The exchange rate in various windows remained stable, helped by steady sales of foreign exchange by the Central Bank of Nigeria (CBN).”

Commenting on the IMF staff report, Head of Research at United Capital, Wale Olusi said “growth rate of the GDP is expected to remain sluggish and below population growth rate, probably less than 2.3 per cent in 2019 due weaker Agric sector performance as observed in Q2.”