Entries for 'Côte d’Ivoire'

Frontier Sub-Saharan Africa is emerging from the pandemic shock, but growth is comparably weak. We project a strong pickup in non-resident capital flows to $56.1 bn in 2021 from last year’s $23.6 bn. The recovery in FDI is robust, but persistently higher investment will be needed over the medium term. Financial conditions remain favorable, and strong Eurobond issuance drives the rise in portfolio flows. IMF emergency financing in 2020 and this year’s general SDR allocation have provided critical support. Assistance from IFIs will continue going forward, albeit at lower levels and with stronger conditionality. In addition, external financing needs are set to rise as substantial Eurobond amortization looms large. Thus, the region will need to attract higher and less volatile inflows to reduce external vulnerabilities. External financing risks are highest in Ghana, where market concerns over the country’s dent are rising. Angola and Nigeria are under less pressure, while IMF programs should help Kenya, Senegal, and Zambia.

Mobile money use in Sub-Saharan Africa has grown substantially in recent years. Limited reach of traditional banking services likely contributed to this dynamic. We estimate that mobile money transactions reached around $275 bn in 2020. However, their importance differs considerably among countries in the region. The industry will likely undergo a fundamental transformation in coming years. Changes will include market entrance of existing app-based payment platforms.

Sub-Saharan African countries will receive an estimated SDR16.2 bn in 2021Q3. While this will increase holdings markedly, it represents a small share of the total. We assess the impact of the allocation in four areas and find it relatively limited. For most of SSA’s largest economies, reserve adequacy will improve marginally. Respective allocations are also too small to fundamentally affect financing needs.

IMF support to Sub-Saharan African countries reached unprecedented levels in 2020. Short-term instruments with limited conditionality accounted for most of the funding. Additional financing will likely be needed to support a robust recovery from COVID-19. In particular, multi-year arrangements could help anchor needed fiscal consolidation. The allocation and possible reallocation of SDRs could be very beneficial for the region.

Domestic banking systems financed widening deficits in Sub-Saharan Africa in 2020. Tighter financial conditions and less IFI support will likely require the same this year. Absent robust deposit growth, this will lead to a crowding out of private sector credit. Meaningful fiscal consolidation would enable banks to expand lending significantly.

Improved market sentiment will allow African sovereigns to return to the market in ‘21. We expect Egypt, Nigeria, Ghana, and South Africa, among others, to issue Eurobonds. However, debt sustainability and liquidity concerns are rising in the context of COVID-19. African countries face Eurobond repayments of close to $100 bn in the coming years. An end to the current low-interest rate environment could make rolling over of debt costly.

Sub-Saharan Africa experienced the first recession in thirty years in 2020 due to the COVID-19 shock. The global recession weighed on external demand and pandemic-related shutdowns on domestic activity. However, commodity prices fared better than expected, and the virus spread less than in other regions. Oil exporters were hit hardest, while countries with more diversified export bases appear less affected. The economic slowdown has had a strong effect on countries’ fiscal positions, and policy space is scarce. As a result, debt is rising across the region, and many countries are seeking relief through the G20 DSSI. Improved market sentiment has led to a return of foreign investors and alleviated financing pressure. Growth is expected to rebound strongly in 2021 where macro and policy environments are supportive. Risks, however, skew to the downside and stem from a second COVID-19 wave and poliical instability.