IMF Survey: Africa's Reforms Have Borne Fruit, But Gains Now Under Threat

February 6, 2009

  • Global downturn will have severe impact on Africa in 2009
  • Africa should try to preserve gains of recent years as it responds to crisis
  • Donor support, smart policies are crucial to Africa's recovery

Growth in Africa is expected to slow to 3¼ percent in 2009, down from the much higher levels of recent years, as the global economic downturn takes its toll on the continent.

Africa's Reforms Have Borne Fruit, But Gains Now Under Threat

Antoinette Sayeh: "Once the crisis abates, it will be important to be able to attract foreign investment back to Africa." (IMF photo)


But as bleak as things look right now, Africa's prospects will be bright once global recovery gets under way, says Antoinette Sayeh, Director of the IMF's African Department.

Countries should strive keep their debt burdens manageable as they seek to limit the slowdown's impact, Sayeh stressed in an interview ahead of next month's conference in Dar es Salaam, Tanzania. The conference, co-hosted by President Kikwete of Tanzania and the IMF, aims to draw lessons from successes in Africa over the past decade and discuss strategies for coping with the global economic crisis.

IMF Survey online: How is the global downturn affecting Africa?

Sayeh: The slowdown is severely impacting Africa. Compared to growth of 5¼ percent in 2008, we now project that growth in Africa will reach only some 3¼ percent in 2009. That is a consequence of falling commodity prices for a significant proportion of Africa's exports, and falling world demand more generally. And the impact is likely to worsen as the year progresses.

IMF Survey online: Could you provide some concrete examples of the impact on countries in the region?

Sayeh: Oil exporters are the most negatively impacted, because of their dependence on a commodity that has seen its price decline by more than 60 percent in the past few months. Oil exporters had, until recently, been running significant fiscal surpluses, but some are now seeing significant fiscal deficits emerge. Oil importers, of course, will benefit from the decline in oil prices. But many oil importers are also exporters of commodities such as cotton, coffee, and cocoa, which have also seen significant price declines in recent months. So it is a mixed picture.

IMF Survey online: How should Africa and its partners respond to the shock?

Sayeh: One of the most significant successes in recent years has been the reduction of Africa's debt burden. It is important that such gains be protected as African countries seek to mitigate the impact of the crisis. Some countries may have the space for a fiscal stimulus—those countries that have already consolidated their fiscal position and have low debt burdens can afford to spend additional budgetary resources to mitigate the decline in private demand. But in countries where debt burdens are high, it would not be desirable to attempt fiscal stimulus. Such a strategy would ultimately lead to inflation and severe pressure on the countries' currencies, with further negative impact on their growth prospects.

It's particularly important that donors live up to the commitments they made at Gleneagles to double aid levels to Africa. We know that it's a difficult time and that donor countries are having to attempt fiscal stimulus of their own and cope with other demands on their resources. But aid budgets are such a small proportion of donor countries' total budgets that we think it's possible to sustain those levels of assistance while still meeting their own domestic needs.

IMF Survey online: What can the IMF do to help Africa?

Sayeh: The Fund significantly expanded its assistance to a number of African countries following last year's food and fuel crisis. Last September, the IMF approved a new financing instrument to support African countries and other low-income countries that are experiencing exogenous shocks. Since that facility was put in place, we have been able to extend support to four African countries, most recently Ethiopia. So the Fund now has the flexibility to respond more quickly and with streamlined conditionality to urgent demands for financing.

The Fund is also expanding its technical assistance to Africa to help build capacity needed for sustained, medium-term growth. Technical assistance has been a significant factor in the progress made by some African countries over the past two decades, and the Fund has been a key partner.

IMF Survey online: How does the upcoming conference in Dar es Salaam fit with the IMF's broader work in helping Africa cope with the crisis?

Sayeh: The IMF and the government of Tanzania are jointly organizing a conference in early March that will bring together policymakers from across Africa and beyond, civil society representatives, and private sector representatives to talk about successes in Africa and what we can learn from them.

The Tanzania conference is aimed at helping us address three broad questions. First, what can we learn from our reform successes in Africa? Second, what is the impact of the crisis on Africa, and how we can make sure that progress is not derailed? The final area for reflection will be the strong partnership that the IMF has built with Africa over the years, and how to further strengthen that partnership. How can the Fund work differently in Africa? How can we be more responsive to the priorities of African countries themselves? And how can we listen more to the voices of civil society and other important stakeholders in Africa in order to sustain the considerable progress made in recent years?

IMF Survey online: Food price increases have resulted in millions of additional malnourished people worldwide. What measures can governments take to protect the poorest segments of their population?

Sayeh: African governments have put in place a number of temporary measures to help deal with the impact on the poor of last year's high food prices. Many involve reducing import tariff rates on important food commodities and making sure that prices remain stable for those commodities. These measures come at a cost to budgets, of course, but we agreed with African governments on the need to protect their poor citizens by temporarily putting in place measures to reduce the cost of critical food products. The World Bank and other partners have helped finance efforts to reduce the impact of the food prices on the poor.

More can be done to better target those measures and make sure that resources are not wasted. We're looking to limit the impact on the absolute poorest households, while others that can afford to pay higher prices do so—so that scarce revenues for government budgets are protected and governments can continue to spend on education, health, and infrastructure.

IMF Survey online: How can Africa get back on track to achieve high growth and raise living standards?

Sayeh: African countries will have to continue to pursue reforms that are ambitious and difficult, but that have borne real fruit over the past two decades. Support from donors is important—so are the right policies. Once the crisis abates, it will be important to be able to attract foreign investment back to Africa. As bleak as things look right now, Africa has bright prospects. African countries are in a much stronger place than they've been for many years. It's important to help them get through the storm, so that when it's over, they'll have a much better basis for continuing to underpin growth and to make sure that growth is translated into better lives for their citizens.

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