The International Monetary Fund (IMF) forecasts show that Sub Saharan Regional Economic Growth will pick up from 3 percent in 2018 to 3.5 percent in 2019, before stabilizing at close to 4 percent over the medium term.
The Washington Based global economic observer makes these projections in their 2019 Sub Saharan Africa Regional Economic Outlook launched in Abuja Nigeria on Tuesday 30th April 2019. Headlined “Recovery Amid Elevated Uncertainty”, the report says the economic recovery in sub-Saharan Africa continues, with about half of the region’s countries mostly non resource intensive countries expected to grow at 5 percent or more, which would see per capita incomes rise faster than the rest of the world on average over the medium term.
In depth the IMF says about 21 countries, mainly the region’s more diversified economies, are the once expected to sustain growth at 5 percent or more and remain on the impressive per capita convergence path they have been on since the early 2000s. On the other hand, 24 other countries, most of which are resource dependent economies, including the largest economies of Nigeria and South Africa, the growth will remain anemic in the near term.
“With about two -thirds of the region’s population residing in these countries, this implies much slower improvement in standards of living for the lion’s share of sub-Saharan Africans. Against the backdrop of a complex and less-supportive external economic and geopolitical environment, the implications for policies in the broadest of terms are twofold,” explains the report overseen by Anne-Marie Gulde-Wolf Deputy Director of IMF Africa.
IMF Africa further notes that for the fast-growing economies, there is need to hand over the reins of growth from the public to the private sector. According to the Regional Outlook, high growth in many of these countries has in part been spurred by higher levels of public investment, leading to a steady increase in public debt levels, notwithstanding rapid growth.
“This is a sign that fiscal policy has been procyclical, and the focus should switch toward limiting the increase in public debt and looking for alternative approaches to create fiscal space for further development spending, including through higher revenue mobilization, strengthening public financial management, and enhancing the efficiency of public investment,” says Papa N’Diaye Deputy Division Chief in the IMF Strategy, Policy, and Review Department.
Furthermore, the Sub Saharan economic outlook highlights that in the more resource-intensive countries and slower growing economies, there is a pressing need to complete the required fiscal and external account adjustments to lower commodity prices, for reforms to facilitate economic diversification, and to promptly address the policy uncertainties that are holding back growth particularly in Nigeria and South Africa. “Weaknesses in public and private balance sheets are weighing on credit to the private sector and growth,” observes IMF economists.
For all other countries, mostly resource-intensive countries, the International Monetary Fund says improvements in living standards will be slower explaining that most countries share the challenge of strengthening resilience and creating higher, more inclusive and durable growth. “Addressing these challenges requires building fiscal space and enhancing resilience to shocks by stepping up actions to mobilize revenues, alongside policies to boost productivity and private investment,” advices the global finance cooperation foster.
On current plans the IMF say Sub Saharan Africa macroeconomic policies are reasonably well calibrated in most countries in the region observing that most sub-Saharan African countries have either a neutral or a tight monetary policy stance and have announced fiscal consolidation plans, which if implemented would contain their debt trajectories. “These macroeconomic policies may need to be recalibrated to support growth in the event downside external risks materialize”. In addition the outlook recommends that countries would need to ensure that any shift in their policy stance is consistent with credible medium-term macroeconomic objectives, available financing, and debt sustainability
When launching the outlook in Abuja Nigeria on Tuesday Director of IMF Africa Department, Abebe Aemro Selassie shared that fast-growing countries that face elevated debt vulnerabilities would need to prioritize rebuilding their buffers. He said in the face of shocks that are deemed temporary, slow growing countries could seek additional financing to accommodate a more gradual macroeconomic adjustment adding that where this additional financing is not available, they should design the composition of macroeconomic adjustments with the least damage to near- and medium-term growth prospects.
“Such policies, together with measures to raise productivity growth and ensure more equitable sharing of the benefits of increased prosperity, would help sub-Saharan African countries strengthen resilience and create the conditions for sustained high and inclusive growth,” said Aemro Selassie. IMF envisions elimination of tariffs on most goods, liberalization of trade of key services, addressing nontariff obstacles that hamper intraregional trade, and eventually creating a continental single market with free movement of labor and capital.
The international Monetary Fund also observes that Africa’s new trade proposition, The African Continental Free Trade Area will likely have important macroeconomic and distributional effect in the year 2019 and beyond. IMF Africa Director Abebe Aemro Selassie says it can significantly boost intra-African trade, particularly if countries tackle nontariff bottlenecks to trade, including physical infrastructure, logistical costs, and other trade facilitation hurdles. “The picture is not uniform,” reads the report.
Furthermore, IMF says more diversified economies and those with better logistics and infrastructure will benefit relatively more from trade integration. “Fiscal revenue losses from tariff reductions are likely to be limited on average, with a few exceptions. Moreover, deeper trade integration is associated with a temporary increase in income inequality,” observed Aemro Selassie.
The AfCFTA agreement envisions elimination of tariffs on most goods, liberalization of trade of key services, addressing nontariff obstacles that hamper intraregional trade, and eventually creating a continental single market with free movement of labor and capital. The IMF suggests that, in addition to tariff reductions, policy efforts to boost regional trade should focus on reforms to address country-specific nontariff bottlenecks. “To ensure that the benefits of regional trade integration are shared by all, policymakers should be mindful of the adjustment costs that integration may entail” said IMF Africa Head on Tuesday.
Abebe Aemro Selassie said less developed and agriculture-based economies, trade policies should be combined with structural reforms to improve agricultural productivity and competitiveness advising that governments should facilitate the reallocation of labor and capital across sectors. “Active-labor market programs such as training and job-search assistance, and measures that enhance competitiveness and productivity and bolster safety nets income support and social insurance programs to alleviate the temporary adverse effects on the most vulnerable”.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”