Analytical Chapters Regional Economic Outlook for Sub-Saharan Africa IMF, African Department May 213
Outline of Presentation Key theme: How to facilitate building growth momentum in a multi-speed and uncertain world by creating the policy space to address shocks and address longer-term development needs. Chapter 2: Strengthening Fiscal Policy Space Chapter 3: Issuing International Sovereign Bonds under Easy Global Financial Conditions Chapter 4: Energy Subsidy Reform in Sub-Saharan Africa
Chapter 2: Strengthening Fiscal Policy Space
Fiscal policy space: Capacity to finance larger deficits during economic slowdowns Ability to avoid a pro-cyclical fiscal policy response in a downturn, or to adopt a counter-cyclical (or neutral) fiscal policy in the event of a downturn General conclusion: while the majority of countries in the region are not burdened by their debt levels, many could find it difficult to finance larger deficits in a downturn. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 4
Sub-Saharan Africa: Distribution of Total Public Debt, 2-12 24 2 Mean Percent of GDP 16 12 8 Interquartile range Median 4 2 21 22 23 24 25 26 27 28 29 21 211 212 Sources: IMF, DSA database; and IMF staff calculations. Note: The "box and whiskers" plot summarizes the distribution of debt-to-gdp ratios across sub-saharan African countries. Public debt-to-gdp ratios have fallen sharply since 2. The steady decline in debt levels was halted by the onset of the global recession. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 5
Percent of GDP 1 8 6 4 2-2 -4-6 -8-1 -12 2-7 Sub- Saharan Africa Oil exporters Sub-Saharan Africa: Total Public Debt Accumulation Decomposition Middleincome countries Lowincome countries Fragile countries Percent of GDP 3 2 1-1 -2-3 -4-5 -6-7 -8 28-12 Sub- Saharan Africa Oil exporters Middleincome countries Lowincome countries Fragile countries Primary deficit Real GDP Real interest rate Real exchange rate Other (including debt relief) Change in debt Sources: IMF, DSA database; and IMF staff calculations. 2-7: improved fiscal balances, strong economic growth, some real exchange rate appreciation, and, in many cases, debt relief. 28-12: diverging trends, with debt relief a key factor for fragile countries. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 6
Oil exporters Middleincome countries Low-income countries Fragile countries Public Sector Debt Levels in 212 and Sustainability Thresholds Cameroon Chad Congo, Republic of Nigeria Cape Verde Ghana Lesotho Senegal Zambia Benin Burkina Faso Ethiopia Gambia, The Kenya Madagascar Malawi Mali Mozambique Niger Rwanda Sierra Leone Tanzania Uganda Burundi Central African Rep. Comoros Congo, Dem. Rep. of Côte d'ivoire Guinea Guinea-Bissau Liberia São Tomé & Príncipe Togo External Domestic DSF threshold 1 2 3 4 5 6 7 8 9 Percent of GDP Sources: IMF, DSA database; and IMF staff calculations. Note: Excludes Eritrea and Zimbabwe. Debt to GDP ratios pertain to public sector debt as defined in the Debt Sustainability Framework. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 7
Public Sector Debt Levels in 212, Non-PRGT-Eligible Countries Oil exporters Middle-income countries Angola Equatorial Guinea Gabon Botswana Mauritius Namibia Seychelles South Africa Swaziland External Domestic 1 2 3 4 5 6 7 8 9 Percent of GDP Sources: IMF, DSA database; and IMF staff calculations. Note: Debt to GDP ratios pertain to public sector debt as defined in the Debt Sustainability Framework. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 8
Public Sector Debt Levels in 212 and Sustainability Thresholds Moderate risk High risk Chad Niger Lesotho Malawi Ghana Sierra Leone Côte d'ivoire Mali Guinea-Bissau Central African Rep. Burkina Faso Togo Guinea Rwanda Gambia, The Congo, Dem. Rep. of Burundi Comoros São Tomé & Príncipe 212 217 2 4 6 8 1 Percent of GDP Sources: IMF, DSA database; and IMF staff calculations. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 9
Public Sector Debt Levels in 212 and Sustainability Thresholds Swaziland Seychelles Mauritius South Africa Angola Namibia Gabon Botswana Equatorial Guinea 212 217 2 4 6 8 1 Percent of GDP Sources: IMF, DSA database; and IMF staff calculations. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 1
Percent of GDP 14 12 1 8 6 4 2-2 -4-6 Sub-Saharan Africa: Composition of Government Deficit Financing, Average 28 12 External (net) Domestic (net) Arrears and float Residual Deficit Guinea Ghana South Africa Kenya Botswana Gambia, The Sierra Leone Benin Mauritius Burundi Namibia Zambia Madagascar Central African Rep. Comoros Cape Verde Liberia Senegal Tanzania Mozambique Swaziland Côte d'ivoire Seychelles São Tomé & Príncipe Burkina Faso Mali Niger Rwanda Uganda Congo, Dem. Rep. of Ethiopia Lesotho Guinea-Bissau Countries that financed domestically Countries that financed externally Sources: IMF, World Economic Outlook; and African Department database. Note: External financing and deficit exclude debt-relief operations. Countries with well-developed bond markets relied mainly on domestic bond issuance. Poorer or smaller countries have typically relied on external financing. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 11
Sub-Saharan Africa: External Budget Support, 27 12 6 5 Oil exporters Middle-income countries Low-income countries Fragile countries Percent of GDP 4 3 2 1 27 28 29 21 211 212 Sources: IMF, World Economic Outlook; and African Department database. Note: External financing and deficit exclude debt-relief operations. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 12
Sub-Saharan Africa: Composition of Bank Credit, end-212 or the Most Recent Year Available 12 1 Private credit Government credit Percent of GDP 8 6 4 2 Botswana Cape Verde Ghana Lesotho Mauritius Namibia Senegal Seychelles South Africa Swaziland Zambia Benin Burkina Faso Ethiopia Gambia, The Kenya Madagascar Malawi Mali Mozambique Niger Rwanda Sierra Leone Tanzania Uganda Burundi Central African Rep. Comoros Congo, Dem. Rep. of Côte d'ivoire Eritrea Guinea Guinea-Bissau São Tomé & Príncipe Togo Zimbabwe Middle-income countries Low-income countries Fragile countries International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 13
Sub-Saharan Africa: Changes in Government Deposits, 27-12 Percent of GDP 8 6 4 2 Oil exporters Middle-income countries Low-income countries Fragile countries -2-4 27 28 29 21 211 212 International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 14
Percent of GDP 5 45 4 35 3 25 2 15 1 5 Sub-Saharan Africa: Government Deposits in Banking System and Foreign Reserves, end-212 or the Most Recent Year Available Government deposit in monetary survey Foreign reserves Benin Burkina Faso Côte d'ivoire Guinea-Bissau Mali Niger Senegal Togo Cameroon Central African Rep. Chad Congo, Republic of Equatorial Guinea Gabon Comoros Cape Verde Lesotho Namibia São Tomé & Príncipe Swaziland Angola Burundi Botswana Congo, Dem. Rep. of Ethiopia Ghana Gambia, The Guinea Kenya Madagascar Mozambique Mauritius Malawi Nigeria Rwanda Sierra Leone Seychelles Uganda South Africa Zambia WAEMU CEMAC Other conventional peg Without peg Generally resource-rich countries have large fiscal buffers in the form of deposits. Important for countries where exports and budgetary receipts are volatile. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 15
Near-term: Reducing domestic borrowing needs Building government deposits Longer-term: Strengthening fiscal position Domestic bond market development Can this be done? IMF country teams assessments: about two-thirds of the countries in the region have the capacity to raise revenue and for sizable consolidation by 215 International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 16
Should focus be on fiscal buffers or longer-term development needs? Elevated public debt levels are a constraint, but most countries now have relatively modest levels of public debt. While there is no off-the-shelf answer, some general points can be made: Going into debt distress should be avoided as it is usually an exceptionally costly, and can halt development. Building strong domestic bond markets provide governments with an important additional policy option. For aid-eligible countries, obtaining exceptional support from multilateral and bilateral donors provides an important additional degree of freedom. In situations where the global outlook is cloudy, more weight needs to be given to building fiscal policy space to handle a downturn. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, May 213 17
Chapter 3: Issuing International Sovereign Bonds under Easy Global Financial Conditions: A Sub-Saharan Africa Perspective
Bond Issuances No bond issuance Has issued bonds Issued Diaspora bond International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, April 213 19
Sub-Saharan Africa: Recent Sovereign Issuances (Excl. South Africa) 1 Billions of U.S. dollars 9 8 7 6 5 4 Tanzania Zambia Namibia Nigeria Senegal Ghana Gabon Republic of Congo Seychelles Côte d'ivoire 3 2 1 24:Q1 25:Q1 26:Q1 27:Q1 28:Q1 29:Q1 21:Q1 211:Q1 212:Q1 213:Q1 Sources: Bank for International Settlement Quarterly Review; Bloomberg; and EPFR Global. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, April 213 2
12 1 Sub-Saharan Africa: Sovereign Bond Issuance Terms 12 (B+) (BB-) 1 Yield in percent Yield in percent 8 6 Ghana (17) 4 Senegal (21) Senegal (Yield at issuance) 2 Zambia (22) Zambia (Yield at issuance) Reference¹ 1/3/211 6/3/211 11/3/211 4/3/212 9/3/212 7 (BBB-) 6 5 4 Namibia (21) Namibia (Yield at issuance) Reference³ 3 9/27/11 12/27/11 3/27/12 6/27/12 Yield in percent Yield in percent Sources: Bloomberg; and IMF staff calculations. 1 Reference is the average of Vietnam, Venezuela, and Egypt. 2 Reference is the average of Sri Lanka, Georgia, and El Salvador 3 Reference is the average of Lithuania, Russia, and Bahrain. 4 Reference is the average of Turkey, Indonesia, Croatia, and Colombia. 8 6 4 Gabon (17) Nigeria (21) 2 Nigeria (Yield at issuance) Reference² 1/3/11 5/3/11 9/3/11 1/3/12 5/3/12 9/3/12 12 (BBB+) 1 8 6 4 2 South Africa (19) South Africa (Yield at issuance) Reference⁴ 7/16/9 7/16/1 7/16/11 7/16/12 International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, April 213 21
Public Debt as Percent of GDP: Before and After Sovereign Bond Issuance 1 Cases other than debt substitution/restructuring 6 5 2 Ghana Senegal 2 4 Nigeria 3 4 3 2 2 1 1 24 25 26 27 28 29 26 28 21 212 282921211212213 4 3 2 1 Namibia 282921211212213 3 2 1 Zambia 29 21 211 212 213 Debt substitution/restructuring 18 Seychelles 4 12 6 8 6 4 2 Gabon 5 2 15 1 5 Republic of Congo 4 8 6 4 2 Côte d'ivoire 4 Bond amount issued Gross Public Debt Year of issuance 23 25 27 29 211 24 25 26 27 28 29 24 25 26 27 28 29 Source: IMF, African Department Database; and IMF staff estimates and projections. 1 Seychelles and Cote d'ivoire issued small amounts of bonds in 27 and 212, respectively, which are not presented in the figure. South Africa is not included. 2 Part of the proceeds from the bond issued in 211 was used to exchange and repurchase the bond issued in 29. 3 Nigeria s bond amount issued in 211 is.2 percent of GDP. 4 n the case of Seychelles in 26, the proceeds were used to clear external arrears to some multilateral and commercial creditors and to repay a collateralized loan. In the other cases, bonds were issued as exchange offers on their defaulted debts. 5 The proceeds were used to repay outstanding debt to the Paris Club. 27 28 29 21 211 212 International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, April 213 22
3 Ghana Sub-Saharan Africa: Public Investment after Bond Issuance 3 Senegal 1 Percent of GDP 2 1 Percent of GDP 2 1 24 25 26 27 28 29 26 27 28 29 21 211 212 Bond amount issued Private investment Public investment Year of issuance Source: IMF, World Economic Outlook database. 1 Part of the proceeds from the bond issued in 211 was used to exchange and repurchase the bond issued in 29. International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, April 213 23
Opportunities: Access to long-term funding for large investment projects Improve debt profile with lower debt servicing cost Can provide a benchmark for pricing corporate bonds in international markets Strengthen transparency and macro discipline Risks: Encourages excess spending, affecting efficiency of public investment expenditure Carry costs Increased vulnerabilities, e.g., FX risk. Potential repercussion for monetary and exchange rate policy International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, April 213 24
Maintain prudent fiscal policies consistent with debt sustainability. Think in terms of an overall medium term debt strategy: e.g., lock in low interest rates with modest amortization over long maturities, while smoothing the maturity profile of the entire portfolio. Review capacity and secure appropriate technical assistance. Follow best practices to get the best possible access terms. Assess advisability of issuing a bond within the medium-term debt strategy framework If advisable: Select legal and financial advisers and lead managers Receive a sovereign rating before issuance Conduct road shows International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, April 213 25
Chapter 4: Energy Subsidy Reform in Sub-Saharan Africa: Lessons and Implications
Energy subsidies are costly nearly 3 percent of GDP Direct subsidies and foregone taxes: 1.4 percent of the region s GDP in 212; Quasi-fiscal deficits of state-owned electricity companies: 1.4 percent of GDP in 29 1 : Subsidies to inefficiency! Subsidies are poorly targeted The bottom 4 percent of households receive only 2 percent of the fuel subsidy i.e., under a universal subsidy policy, the government has to spend 5 dollars in order to give 1 dollar benefit to poorer 4 of households. Similarly, electricity subsidy in SSA countries is skewed to richer households among the poorest 4 percent of households, access to electricity is below 1 percent. 27
Reinforce inequality, as most benefits accrue to richer households Depress growth reduce investment in the energy sector crowd-out critical public spending over-allocate resources to energy intensive sectors Exert pressure on balance of payments of energy importers Create negative externalities (for example, global warming) Selected Regions: Electricity Production, 1975 29 Selected Regions: Access to electricity, 29 kwh per capita 2,9 2,5 2,1 1,7 1,3 9 5 1 East Asia & pacific Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 21 23 25 27 29 Percent of population 9 7 5 3 1 East Asia & Pacific Latin America Middle East & North Africa South Asia Sub-Saharan Africa 28
1. A comprehensive reform plan (e.g., Kenya, Ghana and Uganda) clear long-term objectives assessment of the impact of reforms consultation with stakeholders promote private sector participation 2. A far-reaching communications strategy (e.g., Namibia, Ghana and Uganda) inform the public of the size of all energy subsidies and benefits of reform strengthen transparency in reporting subsidies 3. Appropriately phased and sequenced energy price increases (e.g., Namibia) Gradually raise prices to allow households and enterprises time to adjust and governments to build social safety nets sequence increases differently across products 29
4. Improvements in the efficiency of state-owned enterprises (SOEs) to reduce their fiscal burden (e.g., Kenya and Uganda) Improve reporting on SOE costs, set performance targets and incentives, and introduce competition improve collection of energy bills 5. Targeted mitigating measures to protect the poor (e.g., Kenya, Niger, Ghana) targeted cash transfers where possible when cash transfers are not feasible, other mechanisms can be utilized as administrative capacity is developed SOE restructuring may also require targeted measures (e.g., job training) 6. Depoliticize price setting (e.g., Kenya, Namibia, Tanzania) implement automatic price mechanism (with price smoothing) establish an autonomous body to oversee price setting 3
Power supply increased. Post reform, average annual increase in power supply in Kenya was over 5 percent and in Uganda over 9 percent. Distributional efficiency improved. Distribution losses have steadily fallen and electricity bill collection rates improved Access to grid-supplied power expanded. After limited progress early on, the number of customers with access to grid-supplied power in Uganda increased by 4 percent during 26-12. In Kenya, access increased by nearly 14 percent during 25-11. Progress on reducing quasi-fiscal costs was mixed. In Kenya, the automatic price adjustment mechanism helped reduce quasi-fiscal deficit from 1.5 percent of GDP in 21 to almost zero by 29. In Uganda, notwithstanding efficiency gains, the quasi-fiscal deficit increased steadily until 211 because of higher fuel costs and lack of adjustments in power tariffs. 31
Thank You International Monetary Fund, Regional Economic Outlook for sub-saharan Africa, April 22, 213 32