Macroeconomic imbalances of SSAs declining on policy adjustments, says IMF

The International Monetary Fund (IMF), on Thursday, said that macroeconomic imbalances in Sub-Saharan Africa (SSA) are on a downward trend following a series of economic policy adjustments, although significant challenges remain.

Catherine Pattillo, the IMF’s deputy director for Africa, presented these findings at the Lagos Business School (LBS) on Thursday during the unveiling of the IMF’s Regional Economic Outlook for Sub-Saharan Africa’s Fall 2024 edition, entitled ‘Reforms Amid Great Expectations.’

Pattillo highlighted that the region is implementing substantial reforms to address long-standing economic issues, focusing on fiscal consolidation, inflation control, and currency stability.

“A major positive development has been the stabilisation of the public debt-to-GDP ratio across many countries, although debt remains high at around 58 percent for the median public debt,” she noted. Examples of successful fiscal adjustments include: Côte d’Ivoire, Ghana, and Zambia, where budget deficits have narrowed. However, social and political pressures continue to pose constraints.

The IMF report noted improvements in inflation rates across the region, with central banks raising interest rates despite difficult circumstances.

“Inflation is now within or below target ranges in several countries,” Pattillo stated, noting that while inflation has moderated in about half of SSA countries, it remains at double-digit levels in nearly a third of them, particularly in areas with flexible exchange rates where currency pressure is an ongoing issue.

Another positive development has been the narrowing of foreign exchange deficits, attributed to both policy adjustments and favorable trade terms. The region’s current account deficit is projected to shrink by 0.7 percent of GDP in 2024, helping to ease currency pressures. While exchange rate volatility has lessened, recent fluctuations have been influenced by a stronger U.S. dollar, impacting nations more exposed to trade constraints.

Sub-Saharan Africa has also seen a resurgence in international borrowing. Countries like Benin, Kenya, Senegal, and Cameroon have collectively raised over $6 billion through Eurobond issuances. Ghana’s recent restructuring of its Eurobond debt has been viewed as a significant milestone in debt management for the region. However, Pattillo cautioned that borrowing costs remain high due to tighter global financial conditions.

Despite these favorable trends, Pattillo emphasised that several obstacles continue to hinder SSA’s economic recovery. “Financing conditions are still tight, economic growth remains sluggish, and growth disparities persist between resource-intensive and non-resource-intensive countries,” she stated. Issues such as COVID-19 affects regional security concerns, climate-driven droughts, and energy shortages are further limiting improvements in living standards and economic convergence with global income levels.

According to Pattillo, addressing these challenges will require a carefully balanced policy approach. “Reducing macroeconomic imbalances will require difficult trade-offs,” she said, explaining that countries with severe imbalances may need rapid fiscal adjustments, while those with moderate imbalances could take a gradual approach to avoid social tensions. Nations with low imbalances, she added, could focus on building fiscal and external reserves to strengthen economic resilience.

The IMF report underscored the importance of factoring in social impacts when designing economic policies. While reducing inflation and fiscal deficits is essential for stability, such policies—if not coupled with social support—may lead to public discontent, especially in a region with high poverty levels.

In his opening remarks, LBS Dean, Chris Ogbechie, represented by Franklin Ngwu, director of the LBS Public Sector Initiative, acknowledged the importance of the session. “The timing of this session is critical, as it provides valuable insights into the current economic landscape of the region, addressing both the challenges we face and the opportunities available for fostering sustainable growth,” he said. “This knowledge aligns seamlessly with our mission at Lagos Business School—to equip today’s leaders with the tools and understanding necessary to drive meaningful economic progress in Nigeria and across the African continent.”

The panel discussion featured Bismarck Rewane, managing director and CEO of Financial Derivatives Company Limited; Samuel Sule, CEO of Renaissance Capital Africa, and Olusegun Omisakin, chief economist at the Nigerian Economic Summit Group (NESG). They highlighted the ongoing shift in SSA economies from real sectors to service-oriented sectors, with trading activities now contributing significantly to GDP, driven largely by female participation. “While this shift may be strategic, much of it appears to be happening organically, aligning with economic growth projections for the coming years,” they remarked.

Panelists also stressed that effective communication is essential in policy implementation, referencing recent challenges with currency reform. “A good policy can fail without clear communication,” they observed, urging policymakers to engage stakeholders from the outset to ensure the success of reform initiatives.

On governance, panelists called for models better suited to African contexts, noting that the forecasted stronger U.S. dollar in 2025 could adversely impact African economies.