IMF cuts sub-Saharan Africa 2012 growth forecasts

By Helen Nyambura-Mwaura

JOHANNESBURG (Reuters) – Sub-Saharan Africa’s

economies will expand at a slower rate in 2012 than earlier projected, undermined by global financial

distress and a sluggish recovery in South Africa, the International Monetary Fund (IMF) said on

Monday.

Africa’s growth has remained above 5 percent in the last eight years,

underpinned by strong prices for its natural resources, better governance and growing disposable

incomes.

In its latest Regional Economic Outlook, the IMF forecast 5.4 percent growth this year

from 5.1 percent in 2011. Its previous projections were 5.9 and 5.5 percent respectively.

“The

growth outlook for 2012 is somewhat less favourable than outlined in the October 2011 Regional Economic

Outlook, with the growth projection for 2012 now cut by almost one-half a percentage point, driven in

large part by the weaker economic outlook for South Africa,” the IMF said.

Growth in Africa’s

economic powerhouse was likely to be a relatively modest 2.7 percent this year and 3.4 percent in the

next, held back by its reliance on trade with Europe and close links with western financial markets,

the Fund said.

However, an upturn in drought-hit east Africa, fresh output in new natural

resource producers such as Niger and Sierra Leone and recovery in post-conflict nations such as Ivory

Coast should help boost the continent’s economic activity in 2012.

Sierra Leone and Niger could

post outstanding growth of 35.9 and 14 percent respectively. Big oil-producers Nigeria and Angola will

also be major drivers of the expansion.

Economies reliant on non-renewable resources are

experiencing faster growth but are also suffering the worst volatility in exports, revenues and GDP

expansion, the IMF said.

FEAR OF CONTAGION

The fund also said the rapid expansion of

pan-African banks may be cause for concern in countries with poor regulation.

Banks such as

South Africa’s Standard Bank, Togo-based Ecobank and Kenya’s KCB have been widening their reach,

increasing competition in their new markets while improving technology and expertise.

“But rapid

expansion of these groups may, in some cases, have outpaced supervisory capacity. Under adverse

economic conditions across the region, these banking grounds could become a channel for cross-border

contagion,” the IMF said.

Countries with fast-expanding loan books should prioritise

strengthening the resilience of their financial sectors, the IMF said, pushing for cross-border

supervision in the region.

“Effective mechanisms for limiting cross-border contagion, such as

ring-fencing arrangements aimed at preserving subsidiaries’ resources could be added to a review of

existing banking-resolution frameworks,” the IMF said.

Other than Nigeria, most African banking

systems have remained resilient in the face of global financial stress due to their limited exposure to

the global financial system, although they have suffered because of a drop in trade

levels.

However, the IMF also cited Zambia as an example of an open frontier economy that can

suffer a commercial credit crunch when foreign interest in sovereign bonds dries up and local banks

switch to being solely financiers for the government.