African commodity exporters risk a “disorderly” hit to their economies if they don’t adapt to the reality of low prices, said a senior official at the IMF.
Some governments in sub-Saharan Africa have been slow to “internalize” the fact that prices of oil and other commodities are likely to remain low, said Abebe Aemro Selassie, director of the IMF’s Africa department. Countries need to let their currencies adjust to lower demand, while shoring up their budget balances, implementing reforms to improve competitiveness and cushioning the impact on the poor, he said.
“The alternative is a more disorderly adjustment process when you eventually run out of foreign exchange, when you run out of fiscal space,” Selassie said in an interview in Washington. “These are very difficult political decisions, and we’re under no illusion that putting this in place is going to be easy.”
Sub-Saharan Africa’s economy is set to expand 1.4 percent this year, the slowest pace in more than two decades. Nigeria is poised for its first annual contraction in about 25 years, while growth is expected to be roughly flat in South Africa.
The IMF forecasts growth in the region will pick up next year to slightly less than 3 percent, from 1.4 percent this year, but only if authorities in the largest economies move promptly to correct imbalances and dispel policy uncertainty.
The growth picture has split into a tale of “two Africas,” with the region’s 23 commodity-exporting economies under severe strain and the remaining 22 nations posting reasonably high growth,the fund said.
Selassie said policy implementation by commodity producers has been “inadequate and incomplete.”
“In some cases, it’s basically an expectation that prices will recover, or there are some investments already in the pipeline in the oil sector,” said Selassie.
“There’s an expectation that an increase in production will make things better again.”
Governments have been cutting spending across the board to balance their budgets, rather than taking the preferred route of targeted cuts or durable steps to raise tax revenue, the IMF said in the outlook. Countries have been reluctant to let their currencies weaken as needed, the fund said.
The IMF is concerned the economic damage of the commodities slump is becoming ingrained, undermining the chances of a strong short-term rebound.
The return to growth depends “critically” on the availability of new financing, ideally on lenient terms, the IMF said.