Average growth for SSA is projected to accelerate to 5.9 percent in 2007, primarily because of rising petroleum output in a few oil-producing countries (Figure 3.1).18 Output growth in oil-exporting countries is forecast to increase sharply, from 5.6 to 10.1 percent, as new oil fields come on stream in Angola and Equatorial Guinea. Growth is projected to more than double to 31 percent in Angola, and to rise to over 9 percent in Equatorial Guinea. However, improved growth in Nigeria depends on there being no further disruption of oil production in the Niger delta. Growth in other oil-producing economies is expected to accelerate to between 2½ to 4½ percent—except in the Republic of Congo, where it is expected to decline sharply to about 2 percent as several large oil fields mature.
Real GDP Growth, 2007
(Percent)
Source: IMF, African Department database.The economies of oil-importing countries are projected to grow at a rate of 4.6 percent, led by the Democratic Republic of Congo, Mozambique, and Tanzania—all growing by at least 7 percent. Growth in South Africa is expected to converge toward the potential growth rate of 4 percent. Economic activity in the oil-importing countries is supported by steady investment of almost 20 percent of GDP. Output growth below 2 percent is projected in only four SSA countries: Lesotho, Seychelles, Swaziland, and Zimbabwe.19
For the region as a whole, excluding Zimbabwe, inflation is projected to decline to about 6 percent. In Zimbabwe, if current policies are maintained, inflation can be expected to accelerate to above 4,000 percent. Among oil-exporting countries, inflation should fall significantly, in particular in Nigeria and Angola, which are applying tighter monetary and fiscal policies. Average inflation in South Africa is projected at almost 5.7 percent, somewhat higher than in 2006.
Due to the strength of economic activity in oil-producing countries, both fiscal and current account balances in SSA are expected to improve. However, in a few oil-importing countries (e.g., Cape Verde and Guinea-Bissau), current account deficits (including grants) will worsen. For the region as a whole, excluding South Africa, reserves are projected to rise to 9.3 months of imports, primarily from oil revenue. For oil-importing countries excluding South Africa, reserve coverage is expected to be stable at 4.6 months of imports.
The overall positive outlook will need to be supported by economic policies designed to preserve recent stabilization gains. As countries scale up expenditures in pursuit of the MDGs, their fiscal policies will need to take into account absorptive constraints. Central banks should be vigilant in containing the inflationary pressures caused by higher oil prices. Moreover, the policy frameworks need to be strengthened to effectively absorb higher levels of resources from oil revenue and aid. In addressing possible pressures on the real exchange rate and supply-side constraints, it will be necessary to improve the coordination of fiscal and monetary policy, allocate resources to enhancing productivity, and further liberalize trade.
Prospects for SSA in 2007 will again be subject to political and economic risks. On the upside, continued international efforts to increase development assistance could improve prospects for growth and poverty reduction. On the downside, there are uncertainties about security related to, for example, the unresolved conflict in Côte d’Ivoire, the elections in the Democratic Republic of Congo, local unrest in Nigeria, and instability in Chad. Among the economic downside risks are (1) lowerthan-expected nonoil commodity prices, if the unwinding of large global imbalances and tighter monetary policies lead to a decline in world demand; and (2) higher-than-expected oil prices that may depress growth below expectations, raise cost and price pressures, and increase the financing needs of some oil importers. So far, many SSA countries have been able to contain deterioration in current accounts and finance higher energy and commodity costs partly by drawing down reserves. They were helped by the debt relief provided to a number of SSA countries and by increased private capital inflows. However, persistently high or increasing energy and commodity prices could test the ability of their economies to adjust. Finally, food insecurity may rise in 2007. Early estimates suggest that the 2006-07 harvest will be markedly below the 2005 level in eastern and southern SSA because of irregular rainfall and a reduction in maize production in southern Africa, which had large inventories on hand from the 2005 bumper harvest.
