Economic activity was robust in much of Sub-Saharan Africa in 2013. GDP growth in the region strengthened to 4.7 percent in 2013, up from 3.7 percent in 2012, supported by robust investment in the resource sectors and public infrastructure. However, domestic constraints and a tightening global environment will moderate growth in the medium term.
Fiscal and current account deficits have widened across the region. Ambitious public investment programs, large increases in public wages, and rising transfers and subsidies, coupled with weak revenues, as a result of weak commodity prices, have contributed to the deterioration of fiscal balances in many countries. In Zambia, for example, civil servants’ salaries were increased by a record 45 percent in 2013, putting public finances on an unsustainable path. Partly as a result of rising fiscal deficits, the debt to GDP ratio remained elevated in many countries as government borrowing has risen. Among low-income countries, government debt rose to 43.3 percent of GDP in Mozambique and to 82.1 percent of GDP in the Gambia in 2013. Among middle-income countries, the debt-to-GDP ratio rose to 45.9 percent in Senegal, 60.1 percent in Ghana, and 95.0 percent in Cabo Verde, raising concerns about fiscal sustainability going forward and highlighting the need for fiscal consolidation to rebuild fiscal buffers.
As the United States began to taper its asset purchase program this year, the currencies of South Africa and other frontier market economies, including Ghana, Nigeria and Zambia, came under intense pressure and short-term capital inflows to Sub-Saharan Africa declined significantly, suggesting changing investor sentiment toward the region. In this environment, Zambia undertook the region’s first sovereign debt issuance of the year, raising $1 billion through the sale of 10-year dollar-denominated bonds priced at 8.6 percent, compared with 5.3 percent on its maiden bond issuance in 2012. The increased cost of borrowing reflected not only falling investor demand for frontier market debt but also country-specific risks, including concerns about the country’s rising budget deficit.