Business and Economics > Inflation

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Mr. Itai Agur, Mr. Damien Capelle, Mr. Giovanni Dell'Ariccia, and Mr. Damiano Sandri
This paper reviews the theoretical arguments in favor and against MF and presents an empirical assessment of the risks that it may pose for inflation.
International Monetary Fund. African Dept.
This paper discusses the Staff-Monitored Program (SMP) for Zimbabwe and highlights that the new government that assumed office following the July 2018 elections is committed to addressing the macroeconomic imbalances, removing structural distortions to facilitate a resumption in growth, and to re-engaging with the international community including by clearing its external arrears. The SMP will be monitored on a quarterly basis and is intended to assist the authorities in building a track record of implementation of a coherent set of economic and social policies that can facilitate a return to macroeconomic stability and assist in reengagement with the international community. With limited access to external financing and the very low level of international reserves, the authorities’ room for manoeuvre is very narrow. There are also significant implementation risks of the monetary and exchange rate reforms, as well as addressing governance and corruption weaknesses, which could adversely impact the attainment of SMP objectives.
International Monetary Fund. African Dept.

Abstract

Economic growth in sub-Saharan Africa this year is set to drop to its lowest level in more than 20 years, reflecting the adverse external environment, and a lackluster policy response in many countries. However, the aggregate picture is one of multispeed growth: while most of non-resource-intensive countries—half of the countries in the region—continue to perform well, as they benefit from lower oil prices, an improved business environment, and continued strong infrastructure investment, most commodity exporters are under severe economic strains. This is particularly the case for oil exporters whose near-term prospects have worsened significantly in recent months. Sub-Saharan Africa remains a region of immense economic potential, but policy adjustment in the hardest-hit countries needs to be enacted promptly to allow for a growth rebound.

International Monetary Fund. African Dept.

Abstract

Economic growth in sub-Saharan Africa as a whole has fallen to its lowest level in 15 years, though with large variation among countries in the region. The sharp decline in commodity prices has severely strained many of the largest economies, including oil exporters Angola and Nigeria, and other commodity exporters, such as Ghana, South Africa, and Zambia. At the same time, the decline in oil prices has helped other countries continue to show robust growth, including Kenya and Senegal. A strong policy response to the terms-of-trade shocks is critical and urgent in many countries. This report also examines sub-Saharan Africa’s vulnerability to commodity price shocks, and documents the substantial progress made in financial develop, especially financial services based on mobile technologies.

International Monetary Fund. African Dept.

Abstract

Sub-Saharan Africa continues to record strong economic growth, despite the weaker global economic environment. Regional output rose by 5 percent in 2011, with growth set to increase slightly in 2012, helped by still-strong commodity prices, new resource exploitation, and the improved domestic conditions that have underpinned several years of solid trend growth in the region's low-income countries. But there is variation in performance across the region, with output in middle-income countries tracking more closely the global slowdown and with some sub-regions adversely affected, at least temporarily, by drought. Threats to the outlook include the risk of intensified financial stresses in the euro area spilling over into a further slowing of the global economy and the possibility of an oil price surge triggered by rising geopolitical tensions.

International Monetary Fund. African Dept.

Abstract

Tout porte à croire que l’année en cours sera, elle aussi, une année encourageante pour la plupart des pays d’Afrique subsaharienne. Sous l’effet surtout du dynamisme de la demande intérieure mais aussi du niveau élevé des cours des produits de base, l’économie de la région devrait croître de plus de 5¼ % en 2011. Pour 2012, selon les projections de référence des services du FMI, la croissance régionale devrait être supérieure à 5¾ %, compte tenu notamment des mesures ponctuelles prises par plusieurs pays pour stimuler la production. Mais il y a des fantômes au banquet : la hausse des prix mondiaux des produits de l’alimentation et de l’énergie, amplifiée par la sécheresse qui sévit par endroits, a mis à mal les budgets des pauvres et a provoqué une poussée d’inflation, et les hésitations de la reprise mondiale menacent d’assombrir les perspectives d’exportation et de croissance. Les projections régionales pour 2012 reposent en grande partie sur l’hypothèse que le rythme de croissance de l’économie mondiale se maintiendra autour de 4 %. Si la croissance continue de ralentir dans les pays avancés et que la demande mondiale s’en trouve freinée, l’expansion en cours dans la région connaîtra vraisemblablement de grandes difficultés, les pays les plus exposés étant probablement ceux qui sont plus intégrés à l’économie mondiale. Au cours des mois à venir, les autorités devront gérer un équilibre délicat entre, d’une part, la nécessité d’affronter les défis engendrés par la vigueur de la croissance et les récents chocs exogènes et, d’autre part, celle d’éviter les effets négatifs d’un nouveau ralentissement de l’activité mondiale. Dans certains pays moins dynamiques, qui sont surtout des pays à revenu intermédiaire et où la liberté d’action des autorités n’est pas soumise à des contraintes financières, il est clair que les pouvoirs publics doivent continuer de soutenir la croissance de la production, à plus forte raison si la croissance mondiale vacille. Pour autant que l’économie mondiale connaisse, comme prévu aujourd’hui, une croissance régulière mais faible, la plupart des pays à faible revenu de la région devraient fonder résolument leur politique budgétaire sur des considérations de moyen terme, tout en resserrant leur politique monétaire partout où l’inflation hors alimentation a dépassé 10 %. En cas de ralentissement de l’activité mondiale, sous réserve des contraintes de financement, ces pays devraient s’attacher à maintenir les initiatives de dépenses déjà prévues, en laissant jouer les stabilisateurs automatiques du côté des recettes. En ce qui concerne les pays exportateurs de pétrole, l’amélioration des termes de l’échange offre une bonne occasion de constituer des marges de manœuvre pour parer à un regain de volatilité des prix.

International Monetary Fund. African Dept.

Abstract

This year looks set to be another encouraging one for most sub-Saharan African economies. Reflecting mainly strong demand but also elevated commodity prices, the region's economy is set to expand by more than 5¼ percent in 2011. For 2012, the IMF staff's baseline projection is for growth to be higher at 5¾ percent, owing to one-off boosts to production in a number of countries. There are, however, specters at the feast: the increase in global food and fuel prices, amplified by drought affecting parts of the region, has hit the budgets of the poor and sparked rising inflation, and hesitations in the global recovery threaten to weaken export and growth prospects. The projection for 2012 for the region is highly contingent on global economic growth being sustained at about 4 percent. A further slowing of growth in advanced economies, curtailing global demand, would generate significant headwinds for the region's ongoing expansion, with more globally integrated countries likely to be most affected. Policies in the coming months need to tread a fine line between addressing the challenges that strong growth and recent exogenous shocks have engendered and warding off the adverse effects of another global downturn. In some slower-growing, mostly middle-income countries without binding financial constraints, policies should clearly remain supportive of output growth, even more so if global growth sputters. Provided the global economy experiences the currently predicted slow and steady growth, most of the region's low-income countries should focus squarely on medium-term considerations in setting fiscal policy while tightening monetary policy wherever nonfood inflation has climbed above single digits. In the event of a global downturn, subject to financing constraints, policies in these countries should focus on maintaining planned spending initiatives, while allowing automatic stabilizers to operate on the revenue side. For the region's oil exporters, better terms of trade provide a good opportunity to build up policy buffers against further price volatility.

Mr. Xavier Debrun, Ms. Catherine A Pattillo, and Mr. Paul R Masson
This paper develops a full-fledged cost-benefit analysis of monetary integration, and applies it to the currency unions actively pursued in Africa. The benefits of monetary union come from a more credible monetary policy, while the costs derive from real shock asymmetries and fiscal disparities. The model is calibrated using African data. Simulations indicate that the proposed EAC, ECOWAS, and SADC monetary unions bring about net benefits to some potential members, but modest net gains and sometimes net losses for others. Strengthening domestic macroeconomic frameworks is shown to provide some of the same improvements as monetary integration, reducing the latter’s relative attractiveness.
Mr. Robert M Burgess
This paper discusses initial performance of the Southern African Development Community’s (SADC) Macroeconomic Convergence Program. The SADC’s regional economic integration agenda includes a macroeconomic convergence program, intended to achieve and maintain macroeconomic stability in the region, thereby contributing to faster economic growth and laying the basis for eventual monetary union. As macroeconomic performance in the SADC region has improved in recent years, most countries are making progress toward, and in many cases exceeding, the convergence criteria. Most SADC member states have recorded solid macroeconomic performance in recent years, in general coming close too, and in many cases surpassing, the convergence targets specified for 2008. A notable exception in this regard is Zimbabwe, which was in the grip of hyperinflation. The macroeconomic targets for later years are ambitious and, in some cases, warrant further evaluation, given that achieving the targets may be neither necessary nor enough to achieve good macroeconomic results.