Effects of Macroeconomic Stabilityon Growth, Savings, and Investment in Sub-Saharan Africa
An Empirical Investigation

The analysis of this paper indicates that the unsatisfactory overall economic performance of sub-Saharan African countries during 1986–93 was due to inappropriate policies pursued by a number of countries. The countries that have pursued broadly appropriate adjustment policies have performed much better, achieving positive per capita GDP growth. The analysis is supported with an econometric investigation of the effects of macroeconomic policies, structural reforms, and exogenous factors on economic performance. The results indicate that progress in achieving macroeconomic stability and implementing structural reforms have been conducive to better growth, savings, and private investment.

Abstract

The analysis of this paper indicates that the unsatisfactory overall economic performance of sub-Saharan African countries during 1986–93 was due to inappropriate policies pursued by a number of countries. The countries that have pursued broadly appropriate adjustment policies have performed much better, achieving positive per capita GDP growth. The analysis is supported with an econometric investigation of the effects of macroeconomic policies, structural reforms, and exogenous factors on economic performance. The results indicate that progress in achieving macroeconomic stability and implementing structural reforms have been conducive to better growth, savings, and private investment.

I. Introduction

1. Background

The experience of sub-Saharan African countries with structural adjustment has been extensively reviewed by several studies over the past few years, both inside and outside the Fund. 1/ The renewed interest in developments in African countries has been prompted by the less than satisfactory record of performance of Africa as a whole over the past two decades. In addition, it has reflected efforts to assess the adjustment experience and the appropriateness of the adjustment strategy espoused by the Fund and the World Bank and pursued by an increasing number of African countries, as well as to draw lessons for the policy challenges for the rest of the 1990s. The present paper attempts to contribute to this debate, by providing a detailed assessment of the economic performance during 1986–93 of sub-Saharan African countries as a group and of selected analytical subgroups of countries. To this end, the paper focuses on two main approaches: first, an assessment of the evolution of the savings, investment, and net financial balances of the government and private sectors for the various country groups; and second, an econometric evaluation of the relative contribution of policy and exogenous factors, such as terms of trade losses, to the growth, savings, and investment performance of sub-Saharan African countries, as well as an assessment of impact of foreign assistance.

In broad terms, the existing studies on the African experience have shown that the countries that have successfully implemented structural adjustment programs have achieved a significant reduction in their domestic and external imbalances, consistent, on average, with an acceleration in real GDP growth and gains in real per capita incomes; for the most part, however, these gains have been masked by the weak performance of the nonadjusting countries, resulting in a further decline in real per capita income for sub-Saharan Africa as a whole (Table 1).

Table 1.

African Countries: Comparision of Economic Performance

(Annual percentage changes; or in percent)

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Source: IMF, World Economic Outlook, May 1994.

Nonetheless, progress in removing structural and institutional rigidities and strengthening the supply response of the private sector, while broadly positive, has been uneven across countries and has fallen short of initial expectations. Notably, the progress in reforming the public enterprise and financial sectors, and the legal and administrative frameworks has been modest, owing in part to the weak management and implementation capacity of the public sector and the severity of the initial distortions. Furthermore, virtually all sub-Saharan African countries continue to be confronted with deep-rooted developmental constraints, such as low human capital base, rapid population growth, and environmental degradation. Overall, savings and investment balances, particularly of the private sector, remain too low to support a sustainable expansion in output. As can be expected, while significant progress has already been made by several countries, much more remains to be done, as economic adjustment and the attainment of development objectives is a permanent challenge for all developing countries.

A number of key lessons can be drawn from the recent adjustment experience of sub-Saharan African countries. First, the experience of several developing countries under Fund-supported adjustment programs seems to indicate that the adjustment strategy supported by the Fund is conducive to improved economic performance. This strategy emphasizes (a) the restoration of an appropriate structure of relative prices and economic incentives through reliance on market-based instruments of policy; (b) the attainment and maintenance of macroeconomic stability; and (c) the undertaking of structural, institutional, and administrative reforms so as to enhance the efficiency of resource allocation and establish an environment more conducive to private sector development. 1/ Second, attainment of macroeconomic stability is a necessary but not a sufficient condition for strengthening economic performance. To this end, appropriately restrictive macroeconomic policies need to be combined with a broad range of structural and institutional reforms. The sequence of reforms is important, so as to ensure that they are self-reinforcing and that they lower the adjustment costs, particularly for the most vulnerable socioeconomic groups. Third, strong political commitment to reform and domestic ownership of the adjustment programs are essential prerequisites for the success of these programs. Such a commitment is critical for the effective implementation of the economic strategy and the modification of this strategy in light of changing domestic and external conditions. Finally, timely availability of external technical and financial assistance is also crucial for the success of the reform efforts.

Notwithstanding the growing consensus on the appropriateness of market-oriented policies, a number of alternative assessments of the economic performance of sub-Saharan African countries have also been made by commentators outside the Fund during the past few years. 2/ In an environment of heightened expectations with regard to alleviating poverty and raising living standards, some of these assessments have attributed the continued decline in real per capita incomes for African countries as a group to the policies being pursued by several countries under Fund-supported adjustment programs. They have advocated instead more interventionist policies, despite the accumulated evidence on the ineffectiveness of such policies. 1/

A more comprehensive and realistic assessment of the sub-Saharan countries’ economic performance would need to recognize that judgements about the appropriateness of policies cannot be based solely on movements in aggregate statistics. Explicit account needs to be taken of the diverging trends in the performance of countries effectively implementing appropriate adjustment programs (the bulk of which have been supported by the use of Fund resources) on the one hand, and nonadjusting countries on the other. Inappropriate domestic economic policies have been a major contributing factor to the observed weaknesses in economic performance of several countries. In addition, account should be taken of the impact of exogenous economic shocks and, just as importantly, of developments in non-economic factors within each country. In recent years, African countries have been confronted by an unfavorable external environment. The weakening in economic activity in industrial countries since the mid-1980s has contributed to a sharp decline in the world prices of the agricultural and mineral primary commodities exported by sub-Saharan African countries, thus resulting in a major deterioration in their terms of trade. On a number of occasions, the impact of the decline in the terms of trade has been exacerbated by unfavorable weather. In view of the large share of GDP typically accounted for by agriculture and the high proportion of the population living in rural areas in African countries, unfavorable weather tends to have a pronounced effect on output growth and the plight of the rural population. For example, the severe drought in Southern Africa during 1992 substantially reduced agricultural production and exports in all Southern African countries.

The economic performance of African countries has also been influenced to varying degrees by developments in a host of important and interrelated noneconomic factors. Ethnic conflicts have beset several African countries, causing political instability, adverse security conditions, or even protracted civil wars. Unavoidably, under such conditions economic activity is severely disrupted, and economic management becomes very difficult. The limited progress in resolving ethnic conflicts or disputes, and the resulting political instability, have undermined the social cohesion and have not facilitated the emergence of national identity. In such a framework, implementation problems arise even for the simplest economic policies. These difficulties have often been compounded by the legacy of repressive regimes in several African countries and the associated lack of effective systems of checks and balances, as well as by bloated and inefficient public administrations, ineffective judicial systems, and complex administrative and institutional frameworks. Weak economic performance, in turn, has exacerbated social and political tensions.

Notwithstanding these difficulties, major progress was made during the second half of the 1980s and the early 1990s in improving the economic performance of several sub-Saharan African countries. An increasing number of these countries either adopted or intensified the implementation of comprehensive adjustment programs, supported by financial arrangements from the Fund, particularly under the structural adjustment facility (SAF) and the enhanced structural adjustment facility (ESAF), as well as assistance from the World Bank and other bilateral and multilateral donors. The number of sub-Saharan African countries with Fund-supported programs rose from very few in the early 1980s to 24 by the early 1990s (out of a total of 44 countries), of which 22 were countries with arrangements under the SAF/ESAF. 1/ At the same time, however, civil wars, security problems, or major political instability in 11 countries (Angola, Burundi, Liberia, Mozambique, Nigeria, Rwanda, Sierra Leone, Somalia, Sudan, Togo, and Zaire) have resulted in a worsening in their economic conditions at least for a part of the period since 1985. In some countries, the economic liberalization efforts coincided with major progress toward political liberalization, entailing the lifting of the ban on the formation of political parties, the adoption of new more democratic constitutions, and the holding of multiparty parliamentary and presidential elections.

2. Scope of this study and main results

This paper focuses on economic developments in 41 sub-Saharan African countries covered by the African Department of the Fund during the period 1986–93, based on the Economic Trends in Africa database maintained by the African Department; 2/ thus, its coverage is somewhat narrower than that of the Fund’s World Economic Outlook (WEO), as it excludes Angola and Liberia, because of data limitations, and Djibouti, Mauritania, Somalia, and Sudan, which are covered by the Middle Eastern Department.

As highlighted above, sub-Saharan African countries share a number of common structural characteristics, relating mainly to their stage of economic and political development, climatic conditions, and level of human development. 1/ In many other ways, however, sub-Saharan Africa comprises a rather heterogeneous group of countries, in terms of their size, population, the level of GDP, institutional arrangements, and economic endowments. Some of these differences are summarized in Tables 2-4. Aside from South Africa, Nigeria is by far the largest African country in terms of population and GDP, accounting for 21 percent and 24 percent of the total, respectively, in 1992. Together with six other countries (Cameroon, Côte d’Ivoire, Kenya, Ghana, Zimbabwe, and Senegal), Nigeria accounted for 57 percent of sub-Saharan Africa’s total real GDP in 1992.

Table 2.

Sub-Saharan Africa: Real GDP in 1992 1/

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Sources: Economic Trends in Africa data, August 1993; and IMF, International Financial Statistics.

Excluding South Africa.

Table 3.

Sub-Saharan Africa: Population in 1992 1/

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Sources: Economic Trends in Africa data, August 1993; and IMF, International Financial Statistics.

Excluding South Africa.

Table 4.

Sub-Saharan Africa: Per Capita Nominal GDP, 1992

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Source: Economic Trends in Africa data, August 1993.

In addition to sub-Saharan Africa as a whole, this paper considers a number of analytically interesting subgroups of countries, based on criteria related to institutional arrangements and economic performance (Table 5). The first criterion is membership in the CFA franc zone, given the limitation that this membership poses on the use of nominal exchange rate adjustments as an instrument of policy. During the period under review, CFA franc countries had to rely entirely on internal adjustment measures to address the adjustment needs resulting, inter alia, from a major worsening in their external environment. The differentiated economic performance of the CFA franc countries as a group in comparison with the other African countries has had a distinct influence on the performance of sub-Saharan Africa as a whole. The second criterion relates to ex post economic performance. Sub-Saharan countries are divided into two groups, depending on whether they have attained on average positive or negative (non-positive) real per capita GDP growth during 1986–92. It would be interesting to identify the main factors that contributed to the differentiated performance of these two groups of countries. Under the third criterion, countries are divided into three distinct groups depending on the need for or the implementation of appropriate adjustment policies. A small group of sub-Saharan African countries has been characterized in recent years by relatively low internal and external imbalances (countries with low macroeconomic imbalances); broadly speaking, these countries implemented appropriate policies during 1986–93 and did not need to adopt major adjustment programs with or without support from the Fund. The remaining countries have been classified in two other groups, depending on whether or not they adopted broadly appropriate policies under Fund-supported adjustment programs for at least three years during the period under review (sustained adjusters and countries with protracted macroeconomic imbalances). Admittedly, this criterion may contain some judgmental considerations, particularly as some countries were not able to maintain satisfactory performance throughout the period under review.

Table 5.

Sub-Saharan Africa: Analytical Country Groups

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Note: The abbreviations are as follows: AFR: total sub-Saharan Africa; CFA: CFA franc countries; NCFA: Non-CFA franc countries; PPC: countries with positive average per capita growth during 1986–92; NPC: countries with negative average per capita growth during 1986–92; LMI: countries with low macro imbalances; PIM: countries with protracted imbalances; and SAD: sustained adjusters.

This paper provides a detailed assessment of the economic performance of sub-Saharan Africa. The analysis focuses in particular on developments in aggregate and sectoral savings and investment balances with a view to identifying the main differences in the policies pursued by the various country groups and highlighting the characteristics of the subgroup of countries that have achieved positive growth in real per capita GDP. Changes over time in aggregate and sectoral savings and investment balances reflect the impact of macroeconomic policies, as well as the private sector response to the changing policy environment and progress made in alleviating structural and institutional rigidities. In addition, the evolution of sectoral net financial balances allows an evaluation of the contribution of the government and private sectors to the changes in the external current account position.

The analysis indicates that the sustained adjusters achieved positive per capita real GDP growth and lower inflation during 1986–93, while countries with protracted imbalances experienced a decline in per capita incomes and higher inflation. The implementation of appropriate policies by the sustained adjusters contributed to higher government savings and private investment, and was complemented with increasing inflows of foreign assistance. Also, the countries with positive real per capita growth during 1986–93 registered positive government savings, increases in government investment, and strong increases in private savings and investment. In contrast, countries with negative per capita growth recorded declines in savings and investment by both the government and the private sector. The average savings and investment ratios during 1986–93 for the countries with positive per capita growth were significantly higher than those for the countries with negative per capita growth and the average for all sub-Saharan African countries. In addition, the countries that were successful in cushioning the impact of the large cumulative losses in the terms of trade through improvements in their external competitiveness and the implementation of broad-based structural reforms have done better than others.

These results are confirmed by an empirical investigation undertaken of the main contributing factors to growth, savings, and private investment performance in sub-Saharan Africa during 1986–92. The analysis suggests that inappropriate macroeconomic policies were the second largest contributing factor to the poor growth performance of sub-Saharan African countries as a group, after the impact of rapid population growth and unfavorable weather. The adverse effects on growth of terms of trade losses were less significant and appear for non-CFA countries to have been offset by real exchange rate adjustments. The empirical results also indicate that the countries that have made relatively better progress in implementing structural reforms have experienced a stronger overall economic performance.

Progress toward macroeconomic stability is shown also to play a major role in stimulating savings and private investment, as well as in enhancing the benefits from foreign assistance. Low levels of foreign assistance are also found to exert a significant positive influence on growth, once account is taken of the policy environment and other factors that affect growth.

The layout of the rest of this paper is as follows: Section II assesses the recent economic performance of sub-Saharan African countries. Section III discusses the determinants of growth, savings, and investment identified in the theoretical literature. Section IV presents the results of an empirical investigation of the effects of macroeconomic stability and external factors on growth, savings, and investment in sub-Saharan Africa during 1986–92. Finally, Section V summarizes the conclusions and draws some policy implications.

II. Overview of Recent Economic Performance

1. Growth and inflation performance

Positive rates of real GDP growth were recorded for sub-Saharan Africa as a whole (excluding South Africa and Zaire) throughout the period 1986–93, with an annual average rate of 2.3 percent (Table 6). The incidence of growth, however, varied markedly among the various country groups. CFA franc countries experienced negative growth for most of the period under review, with an annual average rate of minus 0.6 percent, while non-CFA franc countries grew by 3.9 percent a year. Looked at from the point of view of policy implementation, stronger growth rates were recorded by countries with low macro imbalances and by sustained adjusters, 4.0 percent and 3.5 percent, respectively. In contrast, the average growth rate of the countries with protracted imbalances, at 1.5 percent, amounted to less than half the average growth rates of the countries with broadly appropriate domestic policies.

Table 6.

Sub-Saharan Africa: Growth and Inflation Performance, 1986–93

(In percent)

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Source: Economic Trends in Africa data, August 1993.

Excluding Zaire.

For most country groups, the recorded real GDP growth continued to be lower than their annual population growth rates, resulting in further declines in real per capita GDP. For sub-Saharan Africa as a whole (excluding South Africa and Zaire), the decline in real per capita income was particularly notable in 1992, as a result primarily of the severe drought that affected Southern Africa, and amounted on average to 0.7 percent a year during 1986–93. The losses in real per capita income by the CFA franc countries were substantially higher, amounting to 3.4 percent a year. The countries with low macroeconomic imbalances and the sustained adjusters recorded positive gains in real per capita GDP in every year during the period under review, with the exception of 1992 (reflecting the effects of the drought), averaging 1.5 percent and 0.6 percent a year, respectively, for the period as a whole. Countries with protracted imbalances recorded declines in real per capita GDP averaging 1.6 percent a year. It should be noted that the growth performance was diversified not only between the various subgroup of countries, but also within individual groups. In broad terms, however, the countries that have pursued appropriate policies did record gains in real per capita GDP. For example, of the 14 countries judged as sustained adjusters, 10 experienced on average positive per capita growth during 1986–93. Also, five out of the six countries with low macroeconomic imbalances had a similar performance record; the growth performance of the sixth country (Zimbabwe) appears to have been severely affected by the drought of 1992. The growth performance was diversified among the CFA franc countries as well. Of the 14 CFA franc countries, 5 (of which 2 are also sustained adjusters) recorded positive and 9 negative per capita growth; in terms of policy implementation, 5 of the CFA franc countries are sustained adjusters and 9 are countries with protracted imbalances.

The inflation performance of sub-Saharan Africa as a whole has been adversely affected by the hyperinflation experienced since 1990 by Zaire. Excluding Zaire and South Africa, sub-Saharan Africa recorded annual inflation rates (as measured by changes in consumer prices) in the low double digits, fluctuating from year to year within a range of 14–32 percent, and averaging about 23 percent during 1986–93. Throughout this period, the CFA franc countries recorded exceptionally low inflation rates, ranging from less than 1 percent to 3.5 percent, and averaging a mere 1.4 percent a year for the period as a whole. The main factor contributing to this commendable performance was the nominal anchor provided by the CFA franc’s fixed value vis-à-vis the French franc, before it was devalued in early January 1994. The inflation performance of the countries with low macroeconomic imbalances was also fairly good; the average annual inflation rate for these countries amounted to around 10 percent, until 1990, but rose to around 20 percent in the subsequent three years, due again in large part to the impact of the drought, averaging 15 percent for the period as a whole. The average inflation rate recorded by the countries with positive per capita growth and by the sustained adjusters was somewhat higher, amounting to 26 percent a year.

The experience of the various country groups would tend to suggest a positive correlation between real GDP growth and inflation, a rather counter-intuitive result. Such an association, however, should not be taken on face value, as it ignores developments in other key determinants of growth performance. As shown below, during the short period under review, and in response primarily to a worsening in the external environment, the CFA franc countries followed essentially deflationary policies that undermined the incentives for private sector activity and growth in general, despite the commendable inflation performance. Most of the sustained adjusters and the countries with positive per capita growth, on the other hand, resorted to sizable nominal exchange rate adjustments and other price reforms, in response, inter alia, to major terms of trade losses, thus putting upward pressures on their price levels. The econometric estimates reported in Section IV confirm that inflation had a negative impact on growth, once the influence of other factors is taken into account.

2. External sector developments

External developments since 1986 in sub-Saharan Africa as a whole and in virtually all country subgroups have been characterized by a modest widening of the current account deficit (excluding official transfers) as a ratio to GDP and a large expansion in the external public debt in relation to both GDP and export earnings, thus underscoring the unsustainable nature of the external imbalances (Table 7). The current account deficit followed a slightly downward trend as a ratio to GDP between 1986 and 1990, but this trend was largely reversed in the subsequent three years. By 1993, the current account deficit/GDP ratio was higher than in 1986 for all country groups other than the CFA franc countries and the countries with protracted imbalances; the current account deficit/GDP ratio for these countries declined marginally during this period. The countries with low macro imbalances experienced a sharp worsening in their current account position, switching from a surplus of 11 percent of GDP in 1986 to a deficit of 2 percent by 1993. Somewhat less dramatically, the current account deficit of the sustained adjusters widened steadily from 6 percent of GDP in 1986 to 10 percent by 1993. The current account deficit for sub-Saharan Africa as a whole (excluding South Africa and Zaire) widened more modestly, from 7 percent of GDP to 8 percent.

Table 7.

Sub-Saharan Africa: External Sector Developments, 1986–93

(In percent, unless otherwise indicated)

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Source: Economic Trends in Africa data, August 1993.

Excluding Zaire.

In broad terms, the current account trends reflected developments in the external environment, the stance of domestic financial policies, and the impact of supply-side exogenous developments induced mainly by changes in weather conditions. During the period under review, the external environment of sub-Saharan African countries worsened sharply as a result of a marked weakening in economic growth in industrial countries (which constitute the main destination of the primary commodity exports of African countries), and a collapse of economic activity in the former Soviet Union (FSU) and, to a lesser extent, in East European countries. This led to a major slowdown in the demand for primary commodities and a sharp reduction in world commodity prices. This trend has been aggravated by a large-scale dumping of primary commodities by the FSU on the world market, and a buoyant supply of primary commodities by developing countries (particularly South East Asian and Latin American countries) and certain industrial countries (aided by high government subsidies). Real primary commodity prices have been declining almost continuously since the early 1980s and recent empirical studies suggest that this weakness is mostly of a secular nature that is unlikely to be reversed. 1/

Given the high dependence of sub-Saharan African countries on primary commodity exports, the decline in world commodity prices has led to a large cumulative decline in their terms of trade, amounting to about 37 percent between 1986 and 1993 for sub-Saharan Africa as a whole (Box 1 and Table 8). This decline took place mainly during 1986–87 and 1991–93, Although the dependence on individual commodities varies from country to country, the overall worsening in the terms of trade experienced by the CFA franc and the non-CFA franc countries was broadly similar. There were some notable differences, however, in the magnitude of terms of trade changes among the other country groups. The countries with positive per capita growth experienced larger losses than the countries with negative per capita growth. In contrast, the terms of trade losses of the sustained adjusters were almost half those of the countries with protracted imbalances. The countries with low macroeconomic imbalances were the only country group that experienced an improvement in its terms of trade, amounting to 37 percent.

Table 8.

Sub-Saharan Africa: Changes in the Terms of Trade and in Real Effective Exchange Rates, 1986–93

(In percent)

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Source: Economic Trends in Africa data, August 1993.

Excluding Zaire.

Dependence on Primary Commodity Exports

The high dependence of sub-Saharan African countries on primary commodity exports is well documented. More importantly, several African countries are heavily dependent on one or two primary commodity exports, and are thus very vulnerable to adverse developments in world market prices for their exports. The tabulation below indicates the average shares in excess of 10 percent of individual commodities in the export earnings of sub-Saharan African countries during 1985–87 (based on World Bank data reported in Dhonte and others (1993)).

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In addition, a number of sub-Saharan African countries are major world producers and exporters of certain primary commodities. Côte d’Ivoire and Ghana are the first and third largest exporters of cocoa in the world, and accounted for 30.7 percent and 14.3 percent, respectively, of world cocoa exports during 1985–87. Guinea is among the largest world exporters of bauxite, with a market share of 43.7 percent during 1985–87. During the same period, Kenya accounted for 10.7 percent of world tea exports.

While the terms of trade losses sustained by most sub-Saharan African countries were broadly similar, the domestic policy response to these losses, particularly in terms of the stance of financial policies and nominal exchange rate adjustments, varied markedly between countries. In all African countries with flexible exchange rate arrangements, the deterioration in the terms of trade was counteracted by nominal and real effective exchange rate depreciations, keeping real exchange rates close to their equilibrium values. 1/ The decline in the real effective exchange rate during 1986–93 amounted to 51 percent for the sustained adjusters and to 68 percent for the countries with positive per capita growth. In contrast, during the same period, despite their superior relative price performance, the appreciation of 72 percent of the nominal effective exchange rate of the CFA franc countries limited the cumulative depreciation of their real effective exchange rate to only 4 percent. 2/ Overall, the downward adjustment in the real effective exchange rate for all sub-Saharan African countries (excluding South Africa and Zaire) amounted to 55 percent, significantly higher than the worsening in the terms of trade, thus cushioning its impact on domestic economic activity.

The exchange rate adjustments moderated the adverse impact on domestic producer prices of the weakening in world commodity prices and contributed to an expansion, albeit modest, in the volume of primary commodity exports of several countries as well as in the volume of other exports; in some countries, this process was encouraged by the maintenance of administered agricultural producer prices at levels higher than export prices, with the difference covered by government subsidies. Thus, the impact of the decline in the terms of trade was essentially felt directly by export earnings, private disposable incomes, and government finances, and only indirectly by domestic production. In countries where government revenue relies heavily on export taxes, the decline in the terms of trade has given rise to major shortfalls in revenue and increasing pressures on the overall fiscal deficits. Nonetheless, the expansion in the volume of exports was not sufficient to offset the weakening in primary commodity prices, resulting in a stagnation of total export earnings during 1986–93, with sizable declines during 1990–93 (Table 9), and concomitant losses in world export market shares. 1/ The tightening of domestic financial policies also contributed to a slowdown in the rate of growth of imports during 1991–93, but in earlier years the growth in imports was substantially higher than the growth in exports for all country groups. For the period 1986–93 as a whole, the annual average growth in imports exceeded that of exports, as well as the growth in real GDP.

Table 9.

Sub-Saharan Africa: Export and Import Performance, 1986–93

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Source: Economic Trends in Africa data, August 1993.

Excluding Zaire.

The widening external financing requirements of sub-Saharan African countries were financed largely by increasing inflows of foreign assistance (grants and concessional long-term loans), debt reschedulings by Paris Club and other creditors, and in part by an accumulation of external debt service payments arrears by several countries. Despite sizable debt forgiveness provided by several official creditors, the external public debt of virtually all groups of African countries increased markedly as a ratio to GDP during 1986–93. By end-1993, the debt/GDP ratio for sub-Saharan Africa as a group had risen to an estimated 90 percent (up from 57 percent in 1986), a level substantially higher than that of other developing countries. 2/ The average debt/GDP ratios were broadly similar among the various country groups at end-1993, ranging from 85 percent to 104 percent, with the exception of the countries with low macroeconomic imbalances; the average debt ratio for these countries actually declined from 40 percent at end-1986 to 29 percent by end-1990, before rising again to 37 percent by end-1993. Moreover, with the decline in absolute terms in export earnings since 1990, the ratio of debt to exports has increased sharply. By end-1993, it amounted to 354 percent for all sub-Saharan African countries, 408 percent for the CFA franc countries, 98 percent for the countries with low macroeconomic imbalances, and 620 percent for the sustained adjusters; the exceptionally high average debt/export ratio for the latter countries reflected primarily their low level of exports in relation to GDP.

3. The stance of financial policies

In broad terms, financial policies in sub-Saharan African countries as a group during the period under review fell short of bringing inflation under control and lowering external imbalances. As indicated above, the inflation rate fluctuated from year to year, while the external current account deficit (excluding official transfers) widened somewhat as a ratio to GDP. Although some progress toward macroeconomic stability has been made by individual countries and country groups, in varying degrees, the attainment of this objective by sub-Saharan African countries remains somewhat elusive. By 1993, fiscal imbalances remained large in relation to GDP in all country groups, significantly in excess of the levels required to stabilize the debt/GDP ratios, while real interest rates were still unduly negative in several countries.

For sub-Saharan African countries as a group (excluding South Africa and Zaire), the stance of fiscal policy, as measured by changes in the primary government budget deficit (excluding grants) as a ratio to GDP, has fluctuated from year to year within a narrow range. The stance of fiscal policy was tightened markedly during 1989–90, but was eased somewhat in subsequent years, reversing some of the gains achieved. Overall, the primary budget deficit declined from 2.6 percent of GDP in 1986 to 1.3 percent by 1993 (Table 10). However, in the face of increasing interest payments on public debt, the overall budget deficit (excluding grants) remained around 7-9 percent of GDP, increasing by 1 percentage point of GDP between 1986 and 1993. Similar trends in the primary and overall budget deficits were experienced by all country groups, with the exception of the CFA franc countries and the countries with low macroeconomic imbalances. In the CFA franc countries, the primary budget deficit widened sharply, to 6.8 percent of GDP in 1987, and declined steadily thereafter, to 1.2 percent by 1993; a similar trend was followed by the overall budget deficit of these countries, but by 1993 it was still higher than in 1986. In the countries with low macroeconomic imbalances, fiscal imbalances were reduced sharply between 1986 and 1990, facilitating a notable reduction in the public debt/GDP ratio, but these gains were virtually reversed by 1993; the primary and overall budget deficits of the countries with low macroeconomic imbalances in 1993, at minus 0.1 percent and 3.3 percent respectively, were still the lowest among sub-Saharan African countries.

Table 10.

Sub-Saharan Africa: Indicators of Financial Policies, 1986–93

(In percent, unless otherwise indicated)

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Source: Economic Trends in Africa data, August 1993.

Excluding Zaire.