African governments must take concrete steps to address the impact of falling commodity prices in Africa and deter economic vulnerabilities and promote inclusive growth, the World Bank Group has said.
Sub-Saharan Africa countries, including Rwanda, will continue to face low and volatile prices in global commodity markets, the bank warned in a statement released yesterday in Washington DC.
It warns that in 2016, growth forecast is likely to remain subdued at 3.3 per cent, way below the robust 6.8 per cent growth in GDP that the region sustained between 2003 and 2008.
Overall, growth is projected to pick up in 2017-2018 to 4.5 per cent, according to World Bank forecast.
Early this year, the Bank projected Rwanda’s economy to grow by 6.8 per cent in 2016 down from 7.6 per cent projected last year but rebound to 7.2 per cent in 2017.
According to the Rwanda Economic Update, released by the World Bank (WB) in February 2016, growth will be affected by the slowdown of the Chinese and European economies, and decline in international commodity prices, particularly for oil and minerals.
A deteriorating external environment has led the World Bank to revise downwards its global and regional growth forecasts for 2016.
The plunge in commodity prices – particularly oil, which fell 67 per cent from June 2014 to December 2015-and weak global growth, especially in emerging market economies, are behind the region’s lackluster performance.
Overall, the economic activity in Sub-Saharan Africa, according to World Bank, slowed in 2015, with GDP growth averaging 3.0 per cent, down from 4.5 per cent in 2014.
The situation could be made worse by weak policy frameworks and delays in implementing adjustments to respond to the drop in revenues from commodity exports and worsening drought conditions in some parts of Africa, the Bank warned.
“As countries adjust to a more challenging global environment, stronger efforts to increase domestic resource mobilisation will be needed. With the trend of falling commodity prices, particularly oil and gas, it is time to accelerate all reforms that will unleash the growth potential of Africa and provide affordable electricity for the African people,” said Makhtar Diop, the World Bank Vice President for Africa.
Commodity price drops have lowered Africa’s terms of trade in 2016 by an estimated 16 per cent, with commodity exporters seeing large terms-of-trade losses.
However, some economies, including Rwanda, are expected to see moderate growth due to improving investor sentiment, he added.
Yoichiro Ishihara, the World Bank senior economist, told The New Times in an earlier interview that growth projections for Rwanda remain impressive and higher than the growth forecast for most sub-Saharan Africa.
Ishihara said macroeconomic stability and policy flexibility, along with positive regional economic outlook, could help Rwanda’s economy stay stable.
IMF revises growth rate for Rwanda
The International Monetary Fund (IMF) last week projected Rwanda’s economic growth to slow down from 6.9 per cent registered last year to 6 per cent for the next two years before picking up in 2018 due to global economic shocks in 2016/17.
These shocks, according to IMF, are fuelled by strengthening of the US dollar which has resulted in the Rwandan franc depreciating.
Delivering the financial stability and monetary policy statements last month, John Rwangombwa, the Governor of the National Bank of Rwanda (BNR), said the bank will continue to pay a close attention on the slowing down of global trade, Rwanda’s trade deficit, which currently stands at 12.7 per cent, and a decline in global commodity prices.
Rwangombwa said BNR will continue to implement accommodative monetary policies to ensure stability despite a global economic slowdown.
For example, both financial stability and monetary policy committees decided last month to maintain the key repo rate at 6.5 per cent for the second quarter of 2016 and, according to Governor Rwangombwa, they will continue to monitor economic developments and take appropriate actions.
Last month, Claver Gatete, the Minister for Finance and Economic Planning, said the government is counting on strong inter-sector linkages to spur economic growth.
Meanwhile, the adverse impact of lower commodity prices, according to experts, is compounded by domestic conditions such as electricity shortages, policy uncertainty, drought, and security threats, which stymied growth in many African economies.
However, the World Bank cited some bright spots where growth continued to be robust such as in Rwanda, Côte d’Ivoire, Kenya and Tanzania, with the situation likely to remain stable.
The external environment confronting the region is expected to remain difficult.