IMF says sub-Saharan Africa nations must contain budget gaps; remains ‘optimistic’ about region

Countries from Ghana to Mozambique have approached the IMF for assistance since the start of last year

SUB-SAHARAN African nations need to contain their fiscal deficits to avoid becoming more vulnerable to external events, the International Monetary Fund said.

“If deficits are not curbed, these countries will be left without buffers and, worse still, remain vulnerable to a financing crisis should external financing conditions get even more difficult,” the Washington-based lender said in its Regional Economic Outlook on Tuesday.

African countries from Ghana to Mozambique have approached the IMF for assistance since the start of last year as high borrowing costs shut economies on the continent out of international capital markets. Fiscal and current-account deficits have widened after the global slump in commodity prices led to a plunge in government revenue among the region’s raw-material exporters.

“With the external environment now much less supportive though, a policy reset is needed to reinvigorate the growth momentum,” the IMF said. “For countries outside monetary unions, exchange-rate flexibility coupled with supportive policies should be the first line of defense.”

Average yields on sub-Saharan sovereign dollar bonds were 7.41% on Monday compared with 4.9% for emerging-market dollar debt, according to data compiled by Bloomberg.

While the lender cut its 2016 growth forecast for the region to 3% from 4% last month, it remains “optimistic” about medium-term expansion prospects.

“The underlying drivers of growth over the medium term” including favourable demographics, remain in place, the IMF said. “What the current slowdown shows instead is that the region is not immune to the multiple transitions afoot in the global economy.”

-Bloomberg

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