by iMFdirect

The IMF's latest regional economic outlook for Sub-Saharan Africa shows growth at its lowest level in more than 20 years. In this podcast, the African Department’s new Director, Abebe Aemro Selassie, says it’s a mixed story of struggling oil-exporters and strong performers.

The report shows the region is going through a difficult period, but Selassie is optimistic.

“Looking ahead, and if countries pursue the right policies, I do see a bright future for the region,” says Selassie, and describes a “multispeed Africa, with multispeed growth.”

The three largest countries in the region—Angola, Nigeria and South Africa—face acute economic imbalances, Selassie says, because governments have not taken steps to cope with the drop in export earnings due to low commodity prices—notably oil.

While the hardest hit countries are a drag on the region’s overall growth, Selassie says countries like Cote d’Ivoire, Senegal, and Tanzania continue to grow at 6 percent or more.

The most important way to cope with the tough times inside and outside their borders is for countries to get their economic house in order.  For everyone, that means decisions on reallocating spending, changing tax systems, and eliminating fuel subsidies, while not increasing the burden on the poor and vulnerable groups.  It also means mobilizing government revenues to help reduce deficits.

Selassie highlights the need for investment in infrastructure and in the development of people, through education and health care.  He sees huge potential for technology, including financial, to help the big parts of the region that remain underbanked. Technology allows money transfers to be cheaper and more secure, and can enhance productivity.

Listen to the whole interview with Abebe Selassie:

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By Christine Lagarde

June 6, 2017

Versions in عربي (Arabic), 中文 (Chinese), Français (French) 日本語 (Japanese), Русский (Russian), and Español (Spanish)

Senior class in Nairobi, Kenya. In many countries with IMF-supported programs public spending on education grew significantly faster than the economy of the country (photo: Xinhua/Sipa USA/Newscom)

IMF-supported programs are designed to help economies get back on their feet, but what about their impact on social spending?

Our latest research shows that health and education spending have typically been protected in low-income country programs. In fact, an analysis of more than 25 years of data (1988–2014) suggests that public health spending, as a share of GDP, has on average remained unchanged, while public education spending has increased by 0.32 percentage points.

The findings underscore the IMF’s strong commitment to protect health and education spending and the most vulnerable during challenging economic reforms. Indeed, in many countries with IMF-supported programs—from Tanzania, to Honduras, to the Kyrgyz Republic—per capita public spending on health and education has significantly outpaced the growth of per capita income.

Safeguarding social spending is critical because women, young people, seniors, and the poor often lack the political leverage to promote their economic well-being. By protecting the health and skills of vulnerable groups, growth will be stronger, more durable, and more inclusive.

Last year, we extended zero interest rates on all IMF concessional lending to help low-income countries deal with future shocks and achieve the Sustainable Development Goals. But cheaper financing alone is not enough to ensure more durable and inclusive growth.

The success of low-income country programs increasingly depends on two key factors—(i) minimum levels of government spending on health, education, and social safety nets; and (ii) specific reform measures to protect vulnerable groups.

Our data indicate that minimum financing levels were included in virtually all low-income country programs, and that more than two-thirds of these program targets were met. In other IMF-supported programs, measures were taken to strengthen social safety nets. In Honduras, for example, the government used an extended cash transfer to cushion the impact of its fiscal adjustment (2014).

More broadly, IMF-supported programs have helped boost social spending by unlocking additional donor financing and by encouraging tax reforms that create stronger and more reliable sources of government revenue.

We also provide hands-on technical assistance in this area, helping more than 130 countries per year to generate higher public revenue that can be used for fresh investment in hospitals, schools, and poverty reduction.

I am glad to say that the Fund’s work has made a difference in low-income countries in recent years, which has been acknowledged across our membership. But we also recognize that we need to work on improvements in several areas:

• First, we need to define program targets more explicitly, building on our recent experiences. In Kenya, for example, targets included the cost of anti-retroviral treatments, spending on primary and secondary public education, and cash transfers to vulnerable children and seniors. By providing these specific goals, Kenya’s 2011 program became more targeted and effective. We want to do more of this.
• Second, we need to improve the design of social safety nets. A good example is Haiti, where programs have pushed up expenditure for poverty reduction, and where the IMF’s emergency loan in the wake of Hurricane Matthew was aimed at rebuilding basic social services. Our goal is to increase the number of programs with concrete measures to protect vulnerable groups.
• Third, we need to deliver better outcomes by stepping up our collaboration with governments and development partners. In Bangladesh, for instance, we have worked closely with the World Bank to gauge the impact of higher food and energy prices on the social safety net. By bringing together the best expertise, we know that we can significantly improve the quality of our own economic analysis and program design.

The final step, of course, is to combine these “three D’s” with more agility. For example, the IMF moved swiftly to provide the Ebola-affected countries with $380 million in financial assistance—“cash in the bank” to help impacted countries fight this devastating disease.

As the African proverb goes: “If you want to go fast, go alone. If you want to go far, go together.”

I recognize that there is more work to be done to achieve greater inclusiveness and economic fairness. Working closely with our partners and member countries, we will build on the progress made so far.

By Sangyup Choi and Stephanie Medina Cas

July 7, 2017

Versions in عربي (Arabic), 中文 (Chinese), 日本語, Français (French), (Japanese), Português (Portuguese), and Русский (Russian)

On the move in Mexico City, Mexico: emerging market economies that are transparent with their data can lower their borrowing costs (photo: Edgard Garrido/Reuters/Newscom)

If sunlight is the best disinfectant, as US Supreme Court Justice Louis Brandeis once famously said, can it also be a money maker? We have tried to quantify the financial gains from greater transparency that emerging market countries can achieve.

Our new research shows that greater data transparency leads to a 15 percent reduction in the spreads on emerging market government bonds one year after the transparency improvements are made. 

These countries use an IMF data standards initiative, the Special Data Dissemination Standard, to compile their data, which they publish on national websites.

Data transparency lowers borrowing costs

Using data from 26 countries, we find a statistically significant effect of data transparency reforms on government bond spreads, which is the difference between the interest rate on a US government bond and that on a bond issued by another country. It is used as a measure of a country’s risk when it comes to investing.

The figure below shows our main findings: during the baseline horizon of one year, the government bond spread declines by 15 percent, and this effect tends to increase over time. We tested whether other factors—such as better economic conditions—contributed to the reduction in the spread after the adoption of transparency reform.

We did this by focusing on a relatively short period (1-8 quarters) around the reforms to make sure the findings are disentangled from other factors. Second, we show that there is no sign of improvement in a country’s economic condition shortly before the reforms. Third, we make sure that other important economic and political events such as a crisis, a loan from the IMF, or the adoption of inflation targeting does not mask the findings. Fourth, we control for additional economic factors that may impact spreads, such as the external debt-to-GDP ratio. We still find a significant impact of the adoption of data standards on government borrowing costs. In this case, the findings still hold.

Walk before you run

While our findings point to the benefits of subscribing to the Special Data Dissemination Standard, we see advantages from adopting a less demanding transparency reform, such as the enhanced General Data Dissemination System. As of June 2017, all the IMF data standards initiatives covered 146 emerging market and developing countries. Since late 2015, 20 of these countries have implemented the enhanced General Data Dissemination Standard to encourage countries with lower statistical capacity to disseminate the data used in their policy dialogue with the IMF. This initiative has been popular, especially in Africa, and the next wave is expected in the Asia-Pacific region:

• In Africa, 13 countries have implemented the enhanced General Data Dissemination Standard including Nigeria, Senegal, Sierra Leone, and Tanzania. More countries, including Cameroon, Ghana, Kenya, and Mozambique are expected to implement it this year.

• In the Asia-Pacific region, Bhutan, Nepal, and Samoa, have also implemented it, and Micronesia is expected to by the end of July 2017. Bangladesh, Cambodia, Maldives, Mongolia, and Myanmar are all in the pipeline.

These countries publish key economic data, such as real GDP growth and the consumer price index, through a National Summary Data Page, which provides policy makers, investors, rating agencies, and the public with easy access to information critical for monitoring economic conditions.

They also plan to publish full Advance Release Calendars, thus committing to discipline in data publication and reducing uncertainty for investors, which should further enhance data transparency.

The preliminary experience with the enhanced General Data Dissemination Standard suggests that it improves coordination between a country’s central bank, ministry of finance and statistics institute, the three institutions involved in data dissemination. This enhanced coordination represents an improvement in governance.

These countries view the implementation of the enhanced General Data Dissemination Standard as a step towards the adoption of the Special Data Dissemination Standard, the initiative for more advanced countries, that will help lower their future borrowing costs.

Transparency through reliable data means policymakers and the public can pursue better policies, and create a more resilient economy.

By IMFBlog

March 9, 2018

(photo: Nielubieklonu/iStock).

The resource curse, or paradox of plenty, is when countries with an abundance of natural resources suffer stagnant economic growth or even contraction.

In this podcast, World Bank economist James Cust, says the problem of eradicating extreme poverty is going to be about how resource-rich countries manage their resource wealth.

“The share of the world's poor living in resource-rich countries in the year 2000 was less than 25 percent, but by 2030 it will be almost 75 percent,” says Cust. 

While the resource curse is notorious, Cust has his sights set on the lesser known presource curse. He says the latter is not an effect from oil exports, as is the case for the better-known resource curse, but rather an effect from the discovery of oil or other natural resources.

“We find that some countries have experienced problems in growth, even before production begins—before a single barrel of oil is taken out of the ground,” he says.

Expectations form the basis of the curse, he adds, and countries, governments and citizens alike suffer from a strike-it-rich euphoria. This emboldens governments to increase spending and borrowing, and in some cases, it leads to economic crises when oil prices collapse, he says.

In theory, major resource discoveries should propel growth. But in practice, Cust says the opposite is often true. Keeping that in mind, Cust has a simple recommendation for countries to avoid the presourse curse.

“Don’t count your chickens before they’ve hatched.”

Take Ghana and Tanzania, which both had major discoveries of oil during the commodities boom. Ghana got off to a good start. The government put in place a strong petroleum revenue management program that specified how to use the oil revenues, and included a savings fund for future generations. It saved about $500 million from oil revenues. Unfortunately, the country borrowed about $4.5 billion. Although it didn't break the rules of their petroleum revenue management act, it defied the spirit of it, Cust says. And when the oil price crashed in 2014, oil revenues dried up, growth slumped.  

Tanzania took a different path. The government didn't increase borrowing to the same extent as Ghana, and didn't increase spending to unsustainable levels. So, when oil prices crashed in 2014, they weren't as vulnerable as Ghana was. 

Fortunately, Cust says lessons from Ghana and Tanzania’s experience can help the current roster of nations grappling with these same challenges learn, and in turn, smartly manage their own major discoveries. 

By IMFBlog

December 13, 2018

Villagers of Moruleng mining community in South Africa; Sub-Saharan Africa countries can see an increase in growth by relying less on commodities and more on non-resource intensive investments. (Photo: SIPHIWE SIBEKI/Reuters/Newscom)

The story of Africa’s growth rate over recent years is a tale with several story lines.  Key to the tale is the degree of dependence on commodities.  Our Chart of the Week shows how the greater a country’s reliance on commodities, the more dramatic the impact of the 2014 commodity shock.  Also, clearly illustrated: the more dramatic the shock, the more challenging the recovery. 

Average growth for sub-Saharan Africa is expected to reach about 3.1 percent in 2018, up from 2.7 percent in 2017.   But the overall picture for sub-Saharan Africa hides a range of different experiences.

Prior to 2014, the region enjoyed a sustained period of strong growth (averaging 5.6 percent during 2000–13) thanks to deep structural reforms and highly supportive external conditions. Since the 2014 commodity shock, life has been difficult for many countries.  Regional growth dipped to 1.4 percent in 2016—the lowest level in more than two decades. 

Different countries experienced the shock and subsequent recovery very differently.   Most oil exporters—countries like Angola and Nigeria—fell into recession after 2014—resulting in a dramatic “V-shaped” dip in the chart.  Conditions in other resource-intensive countries, such as Ghana, South Africa and Zambia were also difficult due to a fall in energy and metal prices, and policy uncertainty. 

Since then, the slight upward tilt of the line graph illustrates that resource-intensive countries have seen some pickup but still below levels attained prior to 2014.  The growth momentum has improved most notably for oil exporters, mainly in Nigeria, while remaining subdued in South Africa. Meanwhile, a few countries continue to deal with security problems which are imposing a severe human and economic toll.  One-third of the population of sub-Saharan Africa lives in countries where GDP per capita fell in 2017 and is expected to fall further in 2018 and 2019.

Meanwhile, non-resource-intensive countries continued to enjoy high growth—at about 6 percent on average, notwithstanding a slight dip after 2014.  This was partly due to public infrastructure investment, good agricultural season, improved business environment and positive impact from lower oil prices. 

Looking ahead, again, the picture is a varied one.  Over the medium term, and with current policies in place, growth is expected to improve to about 4 percent, or 1½ percent per capita—a respectable rate but not enough for the region to fully harness Africa’s demographic dividend, as illustrated in the bar chart below. The region needs to raise growth to create the additional 20 million jobs per year needed to absorb new entrants to labor markets. 

In general, most economies in sub-Saharan Africa are projected to grow far below the rates expected in countries from other regions at similar levels of per capita income.  This is the case for several large economies, including Nigeria and South Africa, which are expected to see their real per capita income fall or stagnate over the medium term.

In contrast, several countries including Ethiopia, Senegal, and Tanzania, are poised to see their per capita income rise faster than would be expected given their level of income due in part to strong public investment.

Shielding the recovery and creating enough jobs for the region to fully harness its demographic dividend will require strong, sustainable, and inclusive growth. Achieving this will, in turn, demand policies to strengthen resilience and facilitate the reallocation of labor and capital into more productive sectors.

Related Links:
Realizing the Potential of the G20 Compact with Africa
Trade and Remittances Within Africa

By Amadou N. R. Sy

If you are reading this blog—drawn by current buzz around financial technology and the "fintech” reference in the title, and its promise to democratize financial services—then it is probably a safe bet to assume that you have heard of M-Pesa. This mobile payments system started in Kenya in 2007 now boasts 30 million users in 10 countries, with other competitors, such as MTN Money and Orange Money, also operating around the continent.

The use of mobile money has grown exponentially over the past 10 years, making the region the global leader in mobile money innovation, adoption, and usage. M-Pesa services are now offered in countries as diverse as Albania, D.R. Congo, Egypt, Ghana, India, Kenya, Lesotho, Mozambique, Romania, and Tanzania. Prospective agreements with MTN Group will allow both Orange Money and M-Pesa services to cover an even larger number of countries across the continent.

Mobile money and greater financial inclusion

While access to traditional banking services remains almost a mirage for most Africans, the near-universal availability of mobile phones has allowed millions to access mobile money services. Mobile money accounts now surpass bank accounts in the region and greater financial inclusion has benefited large swathes of the population that remain unbanked including the poor, the young, and women.

Sub-Saharan Africa is the only region in the world where close to 10 percent of GDP in transactions occur through mobile money. This compares with just 7 percent of GDP in Asia and less than 2 percent of GDP in other regions.

Most African users now rely on mobile payments to send and receive money domestically. Increasingly, they are taking advantage of new services to also send and receive money internationally. In addition, they use mobile money to pay their bills, receive their wages, and pay for goods and services.

Moving up the financial services value chain

Innovation is allowing Africans to move up the “financial services value chain.” From mobile payments, customers in sub-Saharan Africa are gaining access to mobile banking and other services as they open saving accounts, take out loans, purchase insurance, and invest in Government securities or in stock markets with a few touches of their mobile phone. They can even “borrow” electricity and pay later instead of sitting in the dark.

New innovations in fintech are proceeding rapidly. New technologies are being developed and implemented on the continent, and they have the potential to yield significant benefits for Africa. Recognizing this, foreign investors have stepped up their backing for African fintech firms, while those firms develop solutions adapted to the region, for example, to cater for the relatively lower internet speed in some areas. The falling price of smartphones will also help the region reap the rewards of internet-based solutions.

Greater digital inclusion and innovation

In our new paper, we suggest that the challenge now is for the continent to leverage this success in mobile money. It needs to transition to other fintech services and a digital economy. Greater digital inclusion and innovation will not only spur economic growth but a growth that comes with new jobs—the number one preoccupation on a continent that will see more than half the world’s population growth by 2050.

Africa is well positioned to meet its fintech and digital challenges, and with the right policies in place, it could reap a “digital dividend.” But first, policymakers need to address the existing large infrastructure gap in the region, starting with electricity and internet services.

Second: Africa will need to balance the perennial demands of fast-moving innovation against the slower pace of regulation. Good regulation is needed but stifling innovation would be costly.

Fintech beyond financial services

Finally, a message to policymakers and entrepreneurs: consider the potential of fintech beyond the narrow confines of financial services.  This untapped resource can help create jobs and increase the productivity of both workers and firms.  Ultimately, fintech could be the critical stepping stone towards a digital economy for Africa—a continent where most countries are still overly dependent on a few dominant sectors. Fintech—if exploited well—could yet prove key to this structural transformation.

By Esha Chhabra and Bidisha Das

Thanks to mobile money, any person with a basic phone can now make cash transfers, pay bills, and send money to family members abroad without having a bank account. This is a game-changing innovation, particularly for the world’s poor as it is easy and cheap.

Our chart of the week from the IMF’s Financial Access Survey shows the growth in mobile money accounts across regions. While mobile money continues to grow in its epicenter in Africa, it’s also taking off in Asia. Mobile money is just one aspect of the survey, which also provides a wealth of information on the access to and use of basic financial services, including breakdowns by gender.

Asia’s mobile money uptake

Over the past five years, mobile money has gained traction in South Asia, which is experiencing an average annual growth rate of 46 percent in mobile money accounts—the highest across all regions. Bangladesh, Indonesia, and Pakistan are a few examples of countries experiencing high mobile money growth in Asia.

Mobile money services grew early on in sub-Saharan Africa because some countries lacked deep banking penetration. The launch of M-PESA in Kenya in 2007 completely transformed the way the unbanked access financial services.

After a rapid expansion in Kenya, Tanzania, and Uganda, mobile money has spread to other parts of the region. In fact, sub-Saharan Africa still leads in the number of mobile money accounts and in some countries, mobile money accounts now surpass bank accounts.

Mobile money also continues to grow in some fragile states.

Factors behind rapid uptake in new frontiers

In Afghanistan, for example, where only 200 out of 1,000 adults have bank accounts but more than 80 percent of the population has access to a cellular phone, mobile money is picking up. The value of mobile money transactions grew by a factor of four in the past five years—to 1.2 percent of GDP in 2018.

The ability of mobile money services to reach remote customers has contributed to this growth. Mobile network operators employ agents—typically small, local retail stores—to offer services even in remote areas where banks have limited reach.

In Afghanistan, there are, on average, three mobile money agents compared to one or less automated teller machine or commercial bank branch every 1,000 square kilometres. This expansion in mobile money services has helped meet a significant pent-up demand for financial services.

With mobile money becoming more pervasive, governments will need to create regulations to protect new customers against fraud and liquidity risks—the inability of service providers to return funds on demand.

Related Links:
2019 Financial Access Survey Results
2019 Financial Access Survey Trends and Developments