Press Release: Statement by IMF Deputy Managing Director Murilo Portugal at the Conclusion of the First Meeting of the MDG Africa Steering Group

September 14, 2007

Press Release No. 07/191

Mr. Murilo Portugal, Deputy Managing Director of the International Monetary Fund (IMF), issued the following statement today at the conclusion of the first meeting of the MDG Africa Steering Group at the United Nations in New York City:

"The IMF welcomes the Secretary General's initiative to establish a steering group to help speed up implementation of the Millennium Development Goals (MDGs) in Africa and I am personally very pleased to participate in its first meeting. The Fund also looks forward to contributing to the working group's activities through the Director of our African Department, Mr. Abdoulaye Bio-Tchané. Progress towards the MDGs in Sub-Saharan Africa remains too slow and this is the continent where achievement of the MDGs is most in danger.

"The Fund endorses the Terms of Reference of both the steering and the working groups and their focus on (1) bringing about coordinated efforts across health, education, agriculture, infrastructure, and statistical systems; (2) turning aid commitments into aid flows; and (3) supporting MDG-related work at the country level in an initial group of focus countries.

"Sub-Saharan Africa (SSA) is experiencing its strongest growth and lowest inflation in over 30 years. Growth in SSA should reach 6¼ percent in 2007 and 6¾ percent in 2008, up from 5¼ percent in last year, with 32 out of 44 countries experiencing single digit inflation. The economic expansion is broad based, cutting across all country groups, although it is strongest in oil exporters. Many countries are reaping the benefits of economic reforms, improved macroeconomic policies, as well as declines in armed conflicts and political instability.

"But only a handful of countries are positioned to meet the income poverty goal, and most SSA countries, especially fragile states, have a tremendous distance to go. Faster progress toward the MDGs undoubtedly will require that SSA countries further strengthen domestic policies. In particular, we see a need for countries to:

• Consolidate stabilization gains and reduce vulnerabilities in their economies;

• Unleash private sector growth by reducing the cost of doing business;

• Increase infrastructure investment to address priority bottlenecks within overall budgetary constraints, while continuing to work toward providing better health and education services;

• Overcome financing constraints by further reforming their domestic financial sectors; and

• Expand markets by reducing trade barriers and intensifying regional trade arrangements, while strengthening customs administration.

"But donors too need to play a more active part; the implementation of their financial pledges has been disappointing so far. Official development assistance flows from OECD countries to SSA (excluding debt relief to Nigeria in 2005) have been broadly flat since 2003. If aid is to meet the US$50 billion target for 2010 that was set at the 2005 Gleneagles Summit, donors must consistently increase net disbursements (excluding debt relief grants), by more than 15 percent every year between now and 2010. However, current projections made by IMF staff on a country-by-country basis indicate that aid by 2010 is expected to grow by only 8 percent per year.

"Let me say a few words about the role of the Fund in helping to meet the objectives of the steering and working groups:

• The Fund will help countries create and maintain an enabling macroeconomic environment for the use of aid through well coordinated fiscal, monetary and exchange rate policies. While the Fund does not have a mandate to actively engage in mobilizing a scaling-up of aid, we will continue our advocacy work in this area.

• Fund-supported programs will generally be designed to support the full spending and absorption of aid; the Fund is currently developing a conceptual framework to guide country teams in this respect. Fund staff is also prepared to assist governments in assessing the macroeconomic and debt sustainability implications of scaling up aid. But specific quantitative thresholds for the spending and absorption of aid will be avoided.

• The Fund considers it to be an integral component of its policy advice in this area to help implement measures that would reduce countries' reliance on aid over time. These measures include strategies to accelerate and diversify economic growth, strengthen domestic resource mobilization, improve fiscal institutions and debt management.

• Medium-term fiscal frameworks are important for formulating spending plans and for resource availability forecasts. The Fund, together with donors, will work to strengthen countries' capacity to develop such frameworks.

• Strengthening public financial management (PFM) is critical for spending aid effectively, and the Fund is actively engaged with donors in the formulation and implementation of reforms in this area.

• Given that aid disbursements are volatile, Fund-supported programs will be designed to allow for expenditure smoothing in the context of medium-term budgets. For example, when aid falls short temporarily, spending programs could still be maintained by domestic financing or reserve drawdown, provided that international reserves are adequate and macroeconomic stability is preserved. Also, it is important to strengthen donor coordination to improve the predictability and delivery of aid.

"The Fund is totally committed to continue its engagement in low-income countries and in SSA, in particular. Currently we have 27 PRGF arrangements under implementation (of which 17 are in SSA), and 5 countries (all in SSA) are receiving support under the Policy Support Instrument. Also, last month our Board approved an Emergency Post-Conflict Assistance to Côte d'Ivoire. In addition, about 33 percent of Fund technical assistance in the field was devoted to SSA in FY2007.

"Steady progress continues to be made in terms of granting debt relief to low income countries:

• 22 countries have already reached the Heavily Indebted Poor Countries (HIPC) Initiative completion point, of which 17 are in SSA. Total commitment by all creditors is US$32.8 billion in 2006 net present value terms, of which US$2.6 billion is the IMF's share. All of these countries (plus Cambodia and Tajikistan) are also currently benefiting from debt relief under the Multilateral Debt Relief Initiative;

• 9 countries have reached the decision point, of which 7 are in SSA. Total commitment by all creditors is US$12.1 billion in 2006 net present value terms, of which US$700 million is the IMF's share; and

• there are 10 pre-decision point countries that could potentially benefit from the HIPC debt relief, of which 6 are in SSA.

"In conclusion, we believe that SSA is at an opportune moment but much more needs to be done by the countries themselves and the donors. With continued good domestic policies, and the international community playing its part, faster progress can be made in meeting the MDGs. I am sure that the initiative we are launching today will contribute importantly and positively to these efforts."

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