IMF update

 

Sub-Saharan Africa China’s Slowing Economy Will Hit Sub-Saharan Africa’s Growth Photo Credit: peeterv/iStock by Getty Images Read this article in French or Chinese. China has forged deep economic ties with countries in sub-Saharan Africa over the past 20 years, making it the region's largest single country trading partner. China buys one-fifth of the region’s exports—metals, minerals, and fuel—and provides most of the manufactured goods and machinery imported by African countries. However, China’s recovery from the pandemic has slowed recently due to a property downturn and flagging demand for its manufactured goods as global growth has also slowed. This matters for Africa. A one percentage point decline in China’s growth rate could reduce average growth in the region by about 0.25 percentage points within a year, according to the latest Regional Economic Outlook. For oil-exporters, such as Angola and Nigeria, the loss could be 0.5 percentage points on average. The ripple effects of China's slowing economy extend to sovereign lending to sub-Saharan Africa, which fell below $1 billion last year—the lowest level in nearly two decades. The cutback marks a shift away from big ticket infrastructure financing, as several African countries struggle with escalating public debt. Chinese loans to the region rose rapidly in the 2000s, with the country’s share of total sub-Saharan African external public debt jumping from less than 2 percent before 2005 to 17 percent by 2021. This makes China the largest bilateral official lender to countries in the region. However, the share of debt owed to China remains relatively small, at just under 6 percent of the region’s overall public debt and is mostly owed by five countries—Angola, Cameroon, Kenya, Nigeria, and Zambia. Adapting to change With geoeconomic fragmentation on the rise, sub-Saharan African countries will need to adapt to China’s growth slowdown and declining economic engagements by building resilience through increased inter-African trade and by rebuilding buffers, including through tax policy reforms and improvements to revenue administration. Efforts to diversify African economies are also vital to sustain future growth. The strong demand for minerals that support renewable energy development could provide an opportunity for countries to forge new trade relationships and develop more local processing capabilities. Countries can improve their competitiveness by creating a favorable business environment, investing in infrastructure, and deepening domestic financial markets. **** Hany Abdel-Latif and Michele Fornino are economists in the IMF's African Department, where Wenjie Chen is a deputy division chief and Henry Rawlings is a research assistant. RELATED LINKS Regional Economic Outlook

Dear MARIA, In today's edition, we highlight: Monetary policy challenges Green innovation Europe and China outlooks G20 growth reforms Quota increase, climate financing, macroeconomic uncertainty, and more

CENTRAL BANKS Global Challenges for Monetary Policy (Credit: IMF Photo/Joshua Roberts) The US Federal Reserve will avoid “the risk of being misled by a few good months of data” and will not hesitate to tighten policy further if appropriate, Chairman Jerome Powell said at the IMF’s Annual Research Conference. Powell spoke on a panel alongside IMF First Deputy Managing Director Gita Gopinath, Bank of Israel Governor Amir Yaron, and Harvard’s Ken Rogoff. The discussion was moderated by IMF Economic Counselor Pierre-Olivier Gourinchas. Gopinath spoke of the challenges facing monetary policy in today's uncertain environment. Yaron discussed the difficulties of conducting monetary policy in a small open economy, like Israel. Rogoff emphasized the importance of central bank independence, adding that central bankers have to constantly fight for it. This year’s 24th Jacques Polak Annual Research Conference is being held in honor of Rogoff’s contributions to economic research and policy. Watch opening remarks from IMF Managing Director Kristalina Georgieva and Gopinath here. Tune in here at 1:30 PM ET on Friday November 10 to watch Princeton’s Mark Aguiar deliver the keynote Mundell-Fleming Lecture. Watch the panel

CLIMATE CHANGE How Green Innovation Can Stimulate Economies and Curb Emissions (Credit: Teamjackson/iStock by Getty Images) Making low-carbon technologies cheaper and more widely available is crucial to reducing harmful emissions, but momentum in green innovation has slowed recently and promising technologies aren’t spreading fast enough to lower-income countries, IMF economists write in a blog. Green innovation peaked at 10 percent of total patent filings in 2010 and has experienced a mild decline since. This is concerning because, as the authors show in a staff discussion note, green innovation is not only good for containing climate change, but for stimulating economic growth too. “Our research shows that doubling green patent filings can boost gross domestic product by 1.7 percent after five years compared with a baseline scenario. And that’s under our most conservative estimate—other estimates show up to four times the effect.”

Navigating an economy through multiple crises is not for the faint-hearted. Nigel Clarke has been Jamaica’s Minister of Finance since 2018 and led its economy through the pandemic as well as devastating natural disasters caused by climate change. In this podcast, Clarke sits down with IMF Western Hemisphere Department Director Rodrigo Valdés to discuss Jamaica’s strong track record of investing in institutions and prioritizing macroeconomic stability. The conversation took place as part of the IMF’s Governor Talks series held during the Annual Meetings in Marrakech.

EUROPE'S ECONOMIC OUTLOOK Productivity Improvements Could Prevent Wage Gains From Fanning Inflation Europe needs to improve productivity over the medium-term to maintain sustainable growth in wages. If not, wage growth could feed back into higher inflation and workers would be no better off, Alfred Kammer, the director of the IMF’s European Department, said on Wednesday. Speaking in Brussels at the launch of the department’s latest Regional Economic Outlook, Kammer told reporters that it’s important for economic recovery that wages catch up with prices. But in Europe’s emerging market economies, wage growth needs to remain below double-digit rates next year and return to rates of not more than 6 percent after, he said. “Our analysis also shows that in the current environment wage growth in emerging markets could easily overshoot levels consistent with productivity and lead to drawn out inflation and competitiveness losses.” Read the European Department's blog on how countries can reconcile short-term wage pressures and long-term labor trends with low inflation. CHINA'S OUTLOOK Growth Upgrade (Credit: Wangfujing, Beijing-R.M.Nunes-iStock by Getty Images) China’s economy is set to meet this year’s government growth target, reflecting a strong post-COVID recovery, Gita Gopinath, the IMF’s first deputy managing director, told a press briefing in Beijing on Tuesday. Speaking after an annual consultation, Gopinath said that real GDP is projected to grow by 5.4 percent this year and 4.6 percent next year amid continued weakness in the property sector and subdued external demand. Those are upward revisions of 0.4 percentage points for both 2023 and 2024 relative to October projections. “Supportive macroeconomic policies are needed to bolster activity amid the needed property sector adjustment and structural reforms to address local government debt. A reorientation of fiscal expenditures toward households and additional easing via interest rates would support growth and investment. Greater exchange rate flexibility would help absorb external shocks and strengthen monetary policy transmission.”

AFRICA China-Africa Links (Credit: peeterv, Joesboy, AvGusT174/iStock by Getty Images) China has forged deep economic ties with countries in sub-Saharan Africa over the past 20 years, but China’s economic performance has important implications for Africa, write IMF staff in a Country Focus blog. A one percentage point decline in China’s growth rate could reduce average growth in the region by about 0.25 percentage points within a year, according to the latest Regional Economic Outlook. For oil-exporters, such as Angola and Nigeria, the loss could be 0.5 percentage points on average, the authors write. “With geoeconomic fragmentation on the rise, sub-Saharan African countries will need to adapt to China’s growth slowdown and declining economic engagements by building resilience through increased inter-African trade and by rebuilding buffers, including through tax policy reforms and improvements to revenue administration.”

FINANCE & DEVELOPMENT Unleashing Mideast Fintech (Credit: Christopher Pike/Bloomberg Para Getty Images) A young, educated, and growing population—and some of the world’s highest mobile, internet, and smartphone penetration rates—point to fertile ground for financial innovation in the Middle East and North Africa, writes the Atlantic Council’s Amjad Ahmad in F&D Magazine. "Yet despite such promise, the region lags in the use of digital banking and the adoption of fintech. Seizing the massive opportunity ahead means overcoming substantial challenges, among them a protective approach to regulation."

Most Group of Twenty economies are likely to keep monetary policy appropriately tight to bring inflation back to target. As the Chart of the Week shows, pairing macroeconomic policy that’s tighter than currently planned in many economies—particularly advanced economies—with priority structural reforms can boost G20 economic output by as much as 0.7 percent over 2025-28 relative to current projections. That’s according to our latest report prepared for the group, whose members are responsible for about four-fifths of global gross domestic product. Read the blog

Weekly Roundup IMF QUOTAS Board Proposes Quota Increase The IMF’s executive board has proposed a 50 percent quota increase allocated to members in proportion to their current quotas. The quota increase would help safeguard global financial stability by enhancing the IMF’s permanent resources and reducing reliance on borrowed resources, a statement said. CLIMATE CHANGE Climate Funding Needs $5 trillion in annual green investments are needed by 2030 to tackle climate change, IMF Financial Counselor Tobias Adrian told the Eastern Caribbean Central Bank's 40th anniversary global conference/Central Banking Autumn Meetings 2023 in St Kitts. Given that the majority of financing will need to come from the private sector, the IMF is working to "crowd in" finance through its own lending, including the Resilience and Sustainability Facility. IMF DATA Now on LinkedIn IMF Data is now on LinkedIn. Follow us for reliable macroeconomic data, statistical guidance, training, and more. Stay tuned for IMF data releases, as well as information about the work of the institution on statistical events, data products and initiatives, collaborations with other institutions, and new statistical manuals or publications. IMF DATA Statistical Data and Metadata The 9th Statistical Data and Metadata Exchange (SDMX) Global Conference held in Bahrain from Oct 29-Nov 2 explored how SDMX tools and technologies can be leveraged to enhance collaboration and knowledge sharing. IMF Director of Statistics Bert Kroese shared how the IMF is modernizing its data management tools using SDMX. EURO AREA Macroeconomic Uncertainty An unexpected increase in macroeconomic uncertainty has a persistent negative impact on euro-area industrial production, accounting for 80 percent of its reduction during the first wave of COVID, according to an IMF staff paper. The paper also finds that an increase in macroeconomic uncertainty negatively affects countries in emerging Europe, contributing the most to the decline in their economic activity during this pandemic period. RESOURCE-RICH COUNTRIES A Fiscal Framework  An IMF staff paper revisits the debate on the design of fiscal rules in resource-rich countries. Its main objective is to assess alternative systems of rules against their policy objectives, while taking into account country characteristics. One of the contributions of the paper is to propose fiscal frameworks that are centered around the principle of insurance against shocks and less reliant on estimating precisely resource wealth, which tends to be highly volatile.

MARK YOUR CALENDAR

NOVEMBER 15 | 10:00 AM EST PortWatch: Monitoring Trade Disruptions From Space Join us for the official launch of PortWatch, an open platform designed to monitor and simulate trade disruptions from climate extremes and other shocks. Watch here NOVEMBER 15-16 IMF Statistical Forum: Measuring Money in Digital Age The forum will discuss how digitalization is impacting the future of money and the exchange of value, and what kind of policies and regulation are needed to ensure a stable and equitable financial system. Register here NOVEMBER 16-17 IMF Conference: Fiscal Policy in an Era of High Debt

(Photo: IMF Photo/Sarah Silbiger) The world of money is changing fast and central banks are at the very center of that change. Shaktikanta Das is the Governor of the Reserve Bank of India, which is responsible for regulating currency and securing monetary stability for the world’s 5th largest economy. Das is also an innovator and a pioneer when it comes to Central Bank Digital Currencies or CBDCs. In this podcast, Das sits down with IMF Asia and Pacific Department head, Krishna Srinivasan, to discuss RBI’s strategy for today and for the future. The conversation took place as part of the Governor Talks series held during the Annual Meetings in Marrakech.   Listen to the podcast on: IMF.org | Gaana | Apple Podcasts | Spotify | Soundcloud | Libsyn | Google Podcasts     Thanks for listening to the podcast. We're always looking to improve your experience so let us know if you have any suggestions! Send your comments to me at bedwards2@imf.org.   Bruce Edwards Producer, IMF Podcasts