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03/01
Africa: Recent Economic Developments and IMF Activities1
By IMF Staff

July 2003

Franšais

The Economic Context

Recent economic developments have been encouraging in sub-Saharan Africa (SSA). Growth was more resilient than in most other regions during the recent global economic downturn, with real GDP increasing by more than 3 percent per annum in SSA in 2001 and 2002, compared with about 1½ percent in the advanced economies. Only countries in developing Asia and countries in transition grew faster than SSA.

Other indicators of economic stability have also been favorable, although there has been some variation across countries. Inflation rates have declined to single digits in most SSA countries; trade and current account balances have stabilized; and external debt burdens have continued on a declining trend, falling from 67 percent of SSA GDP at the end of 2000 to 64 percent of SSA GDP by the end of 2002.

The driving factors behind these developments include progress in improving macroeconomic policies and supporting institutions as well as in resolving regional conflicts. The external environment has also become more favorable through a modest improvement in the terms of trade (mainly higher export prices of some major commodities) and increases in development assistance and debt relief. Prospects for lower trade barriers into industrial countries have improved with the passage of the EU's Everything But Arms initiative and the U.S.'s African Growth and Opportunity Act.

Encouragingly, these developments all represent progress toward achieving the Millennium Development Goals (MDGs), which are centered on halving poverty by 2015. In the March 2002 Monterrey Consensus, the international community recognized that a faster pace of reform and sustained, rapid growth were necessary to achieve those goals. The two-pillar strategy endorsed at Monterrey is based on low-income countries pursuing sound policies and good governance, matched by larger and more effective international financial and technical support. This is also the essence of NEPAD's strategy for promoting economic development in Africa which, in addition, emphasizes sovereignty and national ownership of economic policy.

Yet the achievements thus far are fragile and economic growth in Africa remains below potential--even at 3 percent per annum, it would take more than 40 years for SSA countries to reach the current average income level of other developing countries. And despite some successes, there are still pockets of regional and domestic turmoil, weak governance, inappropriate policies, and insufficient structural reforms. Notwithstanding the recent initiatives by the EU and U.S., barriers to trade remain high, and much depends on a successful completion of the Doha round of trade talks. HIV/AIDS, malaria, and other diseases will dampen growth, and serious droughts have taken a toll in the Horn of Africa, Southern Africa, and Western Sahel. In general, African countries remain very vulnerable to potential adverse shocks, given their lack of economic diversification.

IMF Activities

The IMF is fully committed to playing its part in helping low-income countries reduce poverty through sustained growth. In particular:

  • Our financial commitment to low-income countries--and to Sub-Saharan Africa in particular--remains high.

    • Concessional resourced committed to Sub-Saharan African countries exceed $5 billion.

    • We currently are supporting programs in 23 African countries through our concessional Poverty Reduction and Growth Facility (PRGF).

    • We have also been working closely with African leaders to reinforce our assistance in a number of post-conflict countries.

  • There is evidence that this involvement has played a positive role:

    • The vast majority (over three-quarters) of the sub-Saharan African countries with above average real GDP growth rates in 2002 were implementing Fund-supported programs.

    • Of the ten sub-Saharan African countries that saw average GDP growth of 5 percent or more during 1997-2001, seven were implementing Fund-supported macroeconomic and structural policies.

  • The IMF has embraced the country-driven and participatory Poverty Reduction Strategy Paper (PRSP) approach as the operational framework for implementing the Monterrey Consensus. The Fund is:
    • working to strengthen the alignment of PRSPs and programs supported through the PRGF;


    • continuing efforts to streamline and better focus the conditions for its loans, to ensure country ownership of the reforms and concentrate on the Fund's areas of expertise; and

    • increasing outreach activities in Africa to help encourage greater consultation and participation that is central to the PRSP process.

  • The enhanced Heavily Indebted Poor Country (HIPC) initiative is bearing fruit:
    • 23 countries in sub-Saharan Africa are receiving assistance under the initiative, and seven have arrived at their completion points.


    • Fully implemented, HIPC will reduce debt service payments by about $1.1 billion per year in SSA during 2001-2005, compared to 1998-99.


    • And already, the 23 HIPC countries in SSA are spending more on social services than on debt service--on average almost four times as much--and all have shown a marked increase in the share of health and education in the budgets under their IMF-supported programs.

  • We are intensifying efforts to help build capacity and improve governance in Africa.
    • African countries currently receive more than one-quarter of all technical assistance provided by the Fund, generally free of charge.


    • As part of the Africa Capacity Building Initiative--which aims to increase the volume, range, and coordination of assistance from various multilateral and bilateral providers--the IMF has established two African Technical Assistance Centers (AFRITACs). The first center was opened in Dar es Salaam, Tanzania in October 2002, serving 6 East African countries. A center for 10 West African countries was opened in May 2003 in Bamako, Mali. These centers will provide assistance in formulating and implementing macroeconomic and financial sector policies, and improving the soundness of financial systems and macroeconomic governance. We are hoping to establish three more centers to cover all of sub-Saharan Africa.


    • Sound financial systems are especially critical for supporting economic development. So far, the IMF and World Bank have provided 13 SSA countries with detailed assessments of their financial sector strengths and weaknesses and advice on measures to improve efficiency and better manage risks--under the Financial Sector Assessment Program (FSAP).


    • Financial and economic transparency is also critical for sound policies and strong growth. The IMF and World Bank have so far assessed 17 SSA countries on how well they are observing internationally recognized standards--under the Reports on Standards and Codes (ROSCs) initiative.

  • More generally, countries in Africa--whether or not they receive financial or technical assistance from the Fund--benefit from the full range of policy advice that we provide regularly to all our 184 members. The objective of this advice is threefold:

    i) to establish macroeconomic frameworks that can support sustained high growth and poverty reduction;

    ii) to identify and help countries to manage sources of macroeconomic risks and vulnerabilities; and

    iii) to strengthen institutions and policies that underpin sound macroeconomic management.

The African continent has made considerable progress over the last ten years, with the restoration of macroeconomic stability, a necessary condition for sustainable growth and poverty reduction. But maintaining even this relatively good performance will not suffice to halve poverty by 2015, as envisaged in the Millennium Declaration. Africa has the potential for achieving higher growth - as much as 7 percent per year. This is an ambitious goal which will require that an effort be made on all sides: creating the domestic conditions for growth through sound policies and ensuring that the international environment is supportive of Africa's integration in the world economy. The IMF stands ready to work with its African members as they meet and overcome the challenges facing the continent.


1This Issues Brief was written for the IMF Managing Director's sixth trip to Africa, July 6-11, 2003.


Appendix

The Managing Director's Activities in Africa

Since assuming office in May 2000, Mr. Köhler traveled to Africa six times. Four of these trips were to sub-Saharan Africa.

July 2-8, 2000 - Theme: Listening and Learning

In his first visit to sub-Saharan Africa, Mr. Köhler traveled to Nigeria, Senegal, Cameroon, Mozambique, Botswana, and South Africa. The purpose of the trip was, first, to hear from the authorities on the economic situations and challenges facing their countries and second, to listen to the views of African leaders on the role of the IMF and its involvement in restructuring their economies. In his meetings, Mr. Köhler emphasized that there is today a single integrated world economy and the development of Africa is an essential component in ensuring its health.

Highlights:

· Mr. Köhler met government leaders and civil society in the countries.

· In Senegal he addressed the country's Economic and Social Council at a meeting that included representatives of the private business sector, labor movement, rural associations, and nongovernmental organizations.

February 18-25, 2001 (joint with Mr. Wolfensohn) - Theme: Promoting Collaboration for Development

As a follow-up to their commitment at the Prague 2000 Annual Meetings to put Africa at the center of their institutions' activities, Mr. Köhler and World Bank President James Wolfensohn traveled together to Mali, Tanzania, Nigeria and Kenya. The trip focused on the major issues confronting Africa-the need to reduce poverty through sustained economic growth, combat AIDS, strengthen governance, improve the investment climate, and resolve conflicts. The heads of the IMF and the World Bank were anxious to listen to how African leaders planned to address these issues and to discuss how the institutions could best support them in their efforts.

Highlights:

· In Mali Messrs. Köhler and Wolfensohn participated in meetings hosted by President Konaré of Mali and attended by Heads of State from West and Central Africa.

· They participated in discussions with Heads of State from Southern and East Africa, hosted by President Mkapa, in Tanzania.

· During this trip, they also participated in discussions with the Heads of State of Algeria, Nigeria, and South Africa on the program these leaders were jointly putting forward for Africa's recovery and development, which would soon be launched as the New Partnership for Africa's Development (NEPAD).

NEPAD was formally launched in October 2001. Its long-term goal is an end to poverty in Africa, underpinned by peace, democracy, and the rule of law; development of social and physical infrastructure; and the full participation of African countries in international trade.

May 13, 2001 - Visit to Egypt

Mr. Köhler met with President Hosni Mubarak and other officials to review economic developments and prospects. Discussions focused on how Egypt could build on progress made over the last decade in order to further raise rates of economic growth and job creation and alleviate poverty. Mr. Köhler stressed the importance of pursuing a more outward-oriented growth strategy, and discussed the measures that could achieve this and the assistance that the IMF could provide.

April 28-May 3, 2002 - Theme: Two Pillar Approach


Shortly after the international community endorsed a two pillar approach to development in the Monterrey Consensus (March 2002), Mr. Köhler paid his third visit to Sub-Saharan Africa. Discussions in Tanzania, Democratic Republic of Congo, Côte d'Ivoire, Burkina Faso and Ghana were an opportunity to reflect on how the Fund could support NEPAD. Attention focused on lessons from the IMF's recent reviews of Poverty Reduction Strategy Papers (PRSP) and the Poverty Reduction and Growth Facility (PRGF); systems for monitoring progress toward the achievement of the Millennium Development Goals; and steps to accelerate the development of financial sectors in African countries.

Highlights:

· In addition to discussions with the presidents and other authorities of the five countries, a feature of the visit was Mr. Köhler's participation in a series of workshop discussions with the authorities, members of legislatures, civil society organizations and academics.

· In Accra, Ghana, Mr. Köhler attended the inaugural meeting, hosted by President Kufuor, of the Investors' Advisory Council for Ghana, a forum for promoting dialogue between the government and senior executives of local and multinational companies on ways to improve the investment climate.

· During the trip, the Managing Director launched the IMF's Africa Capacity-Building Initiative in response to an urgent call by African leaders to strengthen economic governance and the capacity of governments to carry out sound economic policies that contribute to reducing poverty. As part of the initiative, Mr. Köhler signed agreements to establish African Regional Technical Assistance Centers (AFRITACs) to enhance IMF support for capacity building. Subsequently, the East AFRITAC was opened in Dar-es-Salaam, Tanzania, in October 2002 and the West AFRITAC in Bamako, Mali, in May 2003.

October 14-21, 2002 - Theme: Regional Cooperation


The Managing Director visited Mauritania, Algeria and Tunisia during October 14-21, 2002, at the invitation of the three countries. The purpose of the visit, which was his first to the Maghreb, was for discussions on issues confronting the regional and global economy, and on the role of the IMF. High on his agenda were steps the three countries could take to boost growth, create jobs, and reduce poverty and the role that the IMF could play in helping these countries achieve these goals.

Highlights:

· During his trip, Mr. Köhler met with presidents and other authorities and called upon the leaders of the three countries to enhance cooperation, stressing the stimulus that regional economic integration can provide to the Maghreb's development.

July 6-11, 2003 - Theme: Reinforcing engagement

During his latest trip to Africa, Mr. Köhler traveled to Ethiopia, Kenya, Madagascar, and Mozambique. The purpose of this visit was to discuss issues confronting these countries and the region, and to reinforce the IMF's continued engagement with Africa. In turn, the leaders of these countries expressed a strong desire for the IMF to remain closely engaged in supporting their economic reforms and poverty-reduction programs.

Highlights:

· During the visit Mr. Köhler held discussions with Prime Minister Meles of Ethiopia, President Kibaki of Kenya, President Ravalomanana of Madagascar, President Chissano of Mozambique, as well as governments, parliamentarians, and civil society.

· At the end of the trip, Mr. Köhler participated in the African Union summit meeting in Maputo, Mozambique and addressed the Heads of State at the opening ceremony.




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