Transcript of Press Briefing African Finance Ministers
October 11, 2008Washington D.C. October 11, 2008
Mr. Mousa G. Bala-Gaye, Secretary of State for Finance & Economic Affairs, The Gambia
Mr. Essimi Menye, Minister of Finance, Cameroon
Mr. John Michuki, Ag. Finance Minister, Kenya
|Webcast of the briefing|
Mr. BÜNEMANN: Ladies and gentlemen, welcome to this traditional press conference of the African finance ministers. My name is Niels Bünemann of the IMF's Media Relations Division. I am very honored to introduce to you the Finance Ministers of The Gambia, of Cameroon, and of Kenya. To my far right is Mr. Mousa Bala-Gaye, then Mr. Essimi Menye, and Mr. John Michuki. The agreement is that we will give the floor to each of the Ministers for a short opening statement and, after that, we will open for questions from the floor. Minister Bala-Gaye, can I start with you?
Mr. BALA-GAYE: I will make my opening statement by stating the present state of the macroeconomic performance of The Gambia, as well as dealing with some of the policy challenges posed by the rising food and oil prices.
The Gambia's macroeconomic performance continues to be very, very strong following robust growth in real GDP averaging 6.5 percent per annum between 2003 and 2006 and thereafter releasing an impressive growth rate of 7.7 percent in 2007. For 2008, we are projecting a growth rate of about 5.6 percent premised by an increase in value-added in telecommunications, tourism, and construction.
However, the uncertainties in the global economy can negatively impact growth. Recent developments in international commodity markets pose challenges and constraints in the fight against poverty in developing countries, promoting food self-sufficiency, and maintaining broad macroeconomic stability.
In The Gambia, the availability of basic commodities, the appreciation of our national currency, the dalasi, and the relatively tight monetary policy stance have helped contain the impact of high prices.
After increasing sharply in 2007, driven by rising global oil and food prices, consumer price inflation decelerated in 2008. Year-on-year inflation rose from 1.4 percent in December 2006 to 6 percent in December 2007 before declining to 1.4 percent in April 2008. However, inflation accelerated to 2.2 percent, 3.85 percent in June, July, and August 2008.
Our expectations are that inflation will remain within the end-December 2008 target of 6 percent. This is purely based on the policy measures implemented by the government of The Gambia, including reducing the sales tax on rice and essential commodities in the consumption basket of most households in The Gambia from 15 percent in July 2007 to 0 in May 2008, maintaining a market-driven price mechanism for petroleum products, and the continued implementation of fiscal and monetary policies.
Mr. Moderator, given that the increases in global food and oil prices are likely to become a permanent feature of the global economy in the near to medium term, combating food price inflation can negatively impact growth, employment, poverty reduction, and the attainment of the Millennium Development Goals. Thus, to enhance the effectiveness of policy responses over the medium to long term, and avoid negative spillovers, the Government of The Gambia plans to implement a set of structural reforms geared toward increasing food production.
Now, these measures include increasing land acreage allocated to food production, provision of agricultural extension services to farmers, provision of farm inputs such as fertilizers, farm implements, and high-yielding and drought-resistant seeds; promotion of mechanized farming through the provision of tractors and cost-effective farming technologies; and improving access to finance to the farming community.
The implementation of the above-measures and policies are not without costs to governments' investments and programs. As a result, substantial resource flows from our development partners in the form of budget support, balance of payments support, and other forms of aid will significantly assist in giving governments an enlarged fiscal space for increased pro-poor spending, sustained output growth, and maintaining broad macroeconomic stability.
Beyond that, a collective global effort is required to eliminate barriers to the flow of capital and trade expertise to areas where they can make a difference. In a forum such as this, and also in the oil and food and agricultural organizations, efforts must be made to eliminate the policy constraints and distortions that impede fuel and food supply increases if we are to put a lid on global inflation. I thank you for your attention.
Mr. BÜNEMANN: Thank you very much for that. May I give to the floor to Minister Menye from Cameroon.
Mr. MENYE: Thank you, Chairman.
(THROUGH INTERPRETER) Recently, Cameroon was struck directly by the surge in the prices of oil and food. That crisis led to social unrest that led the government to adopt a number of emergency measures while ensuring that the progress realized in terms of macroeconomic stability and growth would be maintained.
The surge in oil and food prices had a negative impact on the CPI. Prices of rice, oil, palm oil were rising and made it impossible for many families in Cameroon to afford them because of the surge in international prices and because of the level of wages in civil service that remained frozen for more than ten years.
Given that situation, the response of the government was, in particular, to take effective measures, devoting 1.6 percent of GDP. It was necessary to increase significantly wages in the civil service; taxes and custom duties were suspended; and also it was necessary, above all, to freeze pump prices at the gas stations until the end of 2008.
At the same time, the government decided to focus public investment toward the recovery of the agricultural sector and the development of infrastructure. These investments did not receive sufficient attention during the last years while we were implementing several programs supported by the IMF.
In order to ensure sustainability of these emergency measures, the government decided to strengthen non-oil revenue mobilization to accelerate the reform of the civil service, to improve the quality of public expenditures in order to have more flexibility, and to use part of the oil surplus to finance measures for a reduced cost of living. However, the international financial crisis and its impact could reduce flexibility for the governments because of the drop in export revenues that can be forecasted and also because of the drop in the volume of international assistance.
On that background, the response to the oil and food crisis requires wide cooperation involving the affected countries, donors, international organizations, as well as NGOs. The IMF can play a significant role through the Board, its advices, flexibility in programs that are being implemented, and potential financial support for countries facing balance of payments problems.
In terms of financial support, some of our countries could be interested in increased access to PRGF resources or the ESF facility, and we have to say that we welcome the new access terms. In terms of guidance, the IMF could help us deal with the shocks related to volatility in fiscal revenues and promoting expenditures in priority sectors without endangering macroeconomic stability.
For technical assistance, the IMF could contribute to establish some programs directed to the poorest segment of the population, but we have to underline the practical difficulties in such a targeted transfer mechanism for economic, cultural, and statistical reasons in a society where a significant part of the population has low income, working in the informal sector. It is very difficult to identify targeted transfer instruments geared toward the poorest segment. Therefore, we would like to have more flexibility from the IMF, given the inherent risks going from a generalized subsidy system to a targeted transfer system.
Before concluding, I would like to underline above all that the financial crisis that is ongoing today has been a very destabilizing factor and will probably continue to be so in the coming months and will affect the economies in most of our countries. This is why some measures, strong measures should be adopted so that countries that have a financial system that is still fragile should still benefit from the support and the assistance of advanced economies. Thank you.
Mr. BÜNEMANN: Thank you very much, Minister. I will pass on the floor to Minister Michuki.
Mr. MICHUKI: Thank you, Chairman. The recent history of Kenya starts from the year 2002, and particularly the economic history, when a new government led by the current President, The Honorable Mwai Kibaki, came into power. At that time, the economy of Kenya had been run down and, in fact, starting from the year 2002, growth was 0.5 percent.
That is where my story starts, because it is then and because of those reasons, the rundown on the economy, that the government devised what we call an Economic Recovery Strategy which was to be applied or was applied for the five years that followed up to the end of the year 2005.
Over this period, there were structural adjustments on issues of governance, on issues of the budget, the configuration of the revenue sources, and the establishment of institutions that were to carry the program forward. As a result, the economy grew right up to the end of 2007 by 7 percent.
But then, of course, the elections of last year became disputed. As a result, there were interruptions of that program to the extent that GDP suffered by 1.3 percent, and the economy in the first quarter went down considerably in terms of growth. It was then that there were interventions which led to the creation of a coalition government, which I want to confirm here is working well for the country.
Consequently, growth has resumed and we expect that, by the end of this year, growth will be in the region of 4.5 and in that way prepare for the takeoff of the economy under a new program which the government has put in place and which in Kenya we know as Vision 2030. For that period, we have set ourselves goals which we want to pursue.
The issue of fiscal management has been a success story in Kenya. It has been a success truly because, with a new Kenya Revenue Authority, an entirely independent organization that collects revenue for the government, we have been able to finance 93 percent consistently over budget in the last four years. We have also been able to introduce free universal primary education, which has attracted over 1.2 million children who have not been going to school before.
So, we hope to resume the road we had taken, a road of prosperity, a road of growth, through which we intend to in the next few years, between now and the year 2030, to create a middle-income society in Kenya, because it is through the creation of a society that is stable that we should provide the pedestal on which the economy and way of life will move forward.
The macroeconomic changes that have been introduced in the country have served us well. Interest rates have remained within manageable levels, acceptable levels. Inflation, of course, is an area of concern, particularly in the last few months, but indications are that it is coming down. Interest rates within our markets, interbanks, are below 7 percent. We hope that the "sneeze" which we are experiencing from developed countries will not send across contagious breathing.
Looking forward, there is this financial crisis, global financial crisis which some of us do not believe has come that suddenly, because it is not possible to disorganize the world financially and economically within a matter of hours. Some of us are very, very concerned about this, because we do feel that the surveillance that should have been in place from the IMF-if I may be blunt about it-the application of Article IV which is the mechanism used to maintain discipline in markets and financial institutions, appears not to have been applied on certain members of the IMF. I am thinking that the world is old, explanation, proper explanation, given that we all trust that the IMF is the custodian or the proper financial and market management.
Having said that, the issue also raises other fundamental questions: Who is going to compensate the innocent countries who are likely to suffer from this debacle through no fault of their own? Who is going to compensate? On the political front, the world imposes sanctions on countries that look delinquent; I deliberately used the word "delinquent." Is there any more serious issue in the world than what we are experiencing?
So, hopefully, during this meeting, we trust we will go home with the proper explanation and answers so that we can brief our people when we reach home. Thank you, Mr. Chairman.
Mr. BÜNEMANN: Thank you very much, Minister Michuki. I think we should proceed to the question-and-answer session, and I invite you to present yourselves when you have a question. Please wait for the microphone.
QUESTIONER: Thank you. I have a question for all three Ministers. To what extent are your national financial systems already affected by the current credit crunch?
Mr. BÜNEMANN: Let us take the answers from the far right.
Mr. BALA-GAYE: As far as The Gambia is concerned and from what we have been informed, at the level of the commercial banks they are really insulated. Our central bank, too, in terms of where it deposits its own reserves, I think we were also informed that the central bank is insulated. I mean, there is no doubt that the effects will be felt in the economy. I mean, with the credit crunch, we are anticipating that there will definitely be a drop in our tourism receipts as well as remittances from Gambians in the diaspora.
Mr. MENYE (THROUGH INTERPRETER): Thank you very much.
I think that the level of participation of our economies in the financial market is very limited and that is why the immediate effects which are being felt in the other countries are not visible in our economy. We are expecting delayed effects, especially when it comes to our exports, because it is almost sure that the price of the commodities we export will go down, so we are expecting a considerable reduction of our export receipts.
As I said in my presentation, it is probable that the support and assistance we get from our traditional donors will be reduced, because their resources will be used much more to get their own economies started again. So, we are expecting that situation and it is in that spirit that we want to revitalize our public finances and look at our domestic savings in the hope that in the next 18 months, after 18 months, the economy will come back to normal.
Mr. MICHUKI: Mr. Chairman, I think I dealt with that point.
I gave the example of sneezing and what we did not expect to come from that side. But let me add this. We are watching what Europe, in particular Britain and EU, is doing over this matter, because this is where we sell our agricultural products to; whatever we produce, we sell in those places. So, our exports are very important to us.
The second aspect which we watch is inflation. We will keep an eye on this. The third point is what my colleague has mentioned about aid. We hope that as the developed world, the strong nations correct these distortions which have entered into the market, they will simultaneously put in place a continued program of aid that does not interrupt investments and growth in Africa. We hope that these countries will stand up to be counted to help Africa this time around. Thank you.
Mr. BÜNEMANN: Thank you very much. We have about 10 minutes left and, therefore, short questions and answers will be appreciated.
QUESTIONER: My questions go to the three Ministers, and I have a question for my own Minister. First of all, for the three Ministers, in facing the financial crisis, the food and many things now in Africa, do you think it would be appropriate now to have a single currency so that we end this problem? The second question that I am going to ask is for my own Minister of Finance, Minister Bala-Gaye. What strategy plans do you have with this financial crisis for our country, The Gambia? Thank you very much.
Mr. BÜNEMANN: Thank you. Maybe we can start with Minister Michuki this time and take it the other way so Minister Bala-Gaye can answer both questions at the end. Thank you.
Mr. MICHUKI: Mr. Chairman, currency is a medium of exchange for goods and services. Let us create goods and services so that we have a common currency with which to exchange. Thank you.
Mr. BÜNEMANN: Thank you. Minister Menye.
Mr. MENYE: (THROUGH INTERPRETER) I think that I am not going to speak too long on this. The problem of our countries is the problem of production. We cannot exchange what we are not producing. So, a single currency to have trade with imported goods, I do not think that is our problem. We produce very little. That is why we have to import wheat, for instance.
We need to work more and I think that the current crisis is a good sign for our countries, because we have waited for the donor countries to help us develop agriculture and it never took place. We discovered that no one has invested in agriculture in the last 20 years while we had all sorts of adjustment programs. Today, I think that the issue remains the same. Single currency, fine, but production first.
Mr. BÜNEMANN: Minister Bala-Gaye, there were two questions for you.
Mr. BALA-GAYE: Yes, the first question has been very well answered by my two colleagues. Trade is the basis for a single currency and certainly one that we are trying to forge in West Africa. I mean, if you cannot develop trade between yourselves, among ourselves, I think a single currency will serve very little purpose.
Now, coming to the other question, I mean, that I have already answered; I have already spelt out the effects of the financial crisis in The Gambia. My colleagues have already talked about the issue of aid, which is very, very important, that aid flows will dry up because of the present financial crisis, and what do we do when that happens?
This is what all of us are thinking about, that we must now look inward; we must now be in a position to raise adequate domestic resources so that we can finance growth and development in our own countries. We must also try to develop South-South cooperation in this context and see what cooperation we can forge among ourselves, even if it is not financial but in terms of technical assistance and other forms of cooperation among ourselves.
So, we are all looking at the situation. Immediately I cannot tell you that we have defined a strategy. It has just come on to us, as the Kenyan Minister has said. We will work through it, but the basis of it all is that we must be self-reliant in the medium and the long term. That is the answer to all this, that the countries must strive to be self-reliant, and this is where The Gambia is going to.
Mr. BÜNEMANN: Thank you very much.
QUESTIONER: (THROUGH INTERPRETER) Thank you. You did not talk about synergy when it comes to the African Finance Ministers. Do you think that you have to wait for what the developing countries will decide before you think about the consequences, or do you think that you have to start making some forecasts here?
Mr. BÜNEMANN: Minister Michuki, will you start?
Mr. MICHUKI: This problem, Mr. Chairman, is not of an African origin or making. So, the first thing is to understand it. It is not to hurry with ill-considered actions which you seem to advocate and, therefore, we are studying the situation.
Mr. MENYE (THROUGH INTERPRETER): I think that I am going to stay with what my colleague just said. This morning, the Francophone Group met and agreed to set up a limited team to try to better understand the situation, but I do not think the real problem is a financial problem, as I said awhile ago. The African problem is a problem of production. We do not produce what we eat. That is the first problem.
It is true that we must wait for aid from donor countries to fund agricultural infrastructure, but we can start little by little and that is what will allow us to survive, because when you talk of synergic actions, we are not in the market. What kind of action are we going to carry out?
Mr. BALA-GAYE: I think questions on what would have been the impact of food and oil prices on the African economies would have been much more appropriate.
Now, talking of the financial global crisis, my colleague, the Kenyan Minister, has said we need to understand this first. The African Development Bank, we are told, will be organizing a conference in Tunis in November. Documents will be prepared before that conference so that the implications of the global financial crisis in Africa would have been well discussed and recommendations as to how we go from there would have ensued from the conference. I think this is all that I can say.
Mr. BÜNEMANN: Thank you very much. We have time for two more questions, I think.
QUESTIONER: I would like to ask the three gentlemen, what do you hope for Africa by coming to this Assembly? I know you all want to take something back to Africa by coming here. What would that be?
Mr. BALA-GAYE: This is a medium-sized question and we will all try to give our own views. We have to come to Washington for the Annual Meetings because we are shareholders in both the IMF and the World Bank. This is an annual general meeting of shareholders, so that is one. Coming here, you can see that we have been very busy in the days leading up to the meetings on Monday and Tuesday, and most of these meetings were on a bilateral basis. There are relationships individually as countries with the Fund, and also with the Bank and the institutions of the Bank. So, all of us have programs with the IMF. We come here and review and discuss these programs. There are also interventions by the Bank in our various countries, as well as we discuss future interventions with the Bank. There are other multilateral and bilateral donors who are present in Washington, and we interact with them; we deal with them. But at the global level there is the Development Committee and the IMFC, and those meetings have started today. Communiqués will be issued at the end of those meetings. We are represented in those meetings. All of us cannot participate, but in our constituencies we have elected representatives that will represent the constituencies in those meetings.
Mr. MENYE (THROUGH INTERPRETER): I think that is an excellent question, but I cannot really answer it in that way. I think the question is, each time we come here, what are we looking for, but it is not a single visit that is going to allow us to go home with something. You have to see what our vision is. As the Minister said, we are working in Kenya on Vision 2020 - 2030 to increase the hopes of the country in order to get development which is compatible with the hope of Africa.
So, you cannot come here one time to get something. We have not come here because of the current crisis. We came because it is part of our commitment. We are at the IMF; we are stakeholders, and we are also at the World Bank. The crisis has been going on for more than 12 months.
As we said, when it comes to Cameroon, we are not in the international financial system. These things are taking place above us. We will feel the effects later on; in a few months we will see what happens and we will say it is because of the crisis.
So, I did not come here with hopes when it comes to the crisis, because we are not visible in that market. We have no influence, first of all, when it comes to our voice in the institution, since there are votes. So, we have come here to we see what is happening, we try to understand, and we will probably learn because, as the Minister said awhile ago, we are governed by Article IV. When there is a Board meeting of the World Bank or the IMF, there are resolutions that we have to implement, but other countries can get recommendations but they do not have to listen to them. As I said, there is a problem. That is why we do not need this hope today because, in our countries, first we have to see what we can do in our countries. We can do things without coming here. So, to give you a simple answer, we are dependent now, because we are waiting for aid. We have received aid for years, but was not given what we expected. This time I have come to learn, and also because I am a stakeholder here. The consequences, we are waiting for them. What is important for us is to count ourselves, to do something in our countries. I could give you a longer answer, but that is what I want to say. My hope is not here. My hope is in our countries, because that is where things are happening.
Mr. BÜNEMANN Minister Michuki, do you wish to add anything to this?
Mr. MICHUKI: No, my colleagues have spelled it all out, but as they were answering I saw the lady, the questioner, shaking her head, as if what they were saying, my colleagues were saying is not what she expected. Now, you ask what we are going to take home. This is an entirely different form of hunting. It is not like in Africa where you would hunt and take an impala, and hope everybody sees it on your shoulder. We are here to harvest wisdom; we are here to listen to each other; we are here to sell our programs of development for our people.
We have discussed issues of importance about agriculture. We have discussed climate change and we see that rain-fed agriculture is not very much of hope in Africa. We need the Bank to set aside money to create dams, to harvest storm water.
If we can convince the Bank to do that and to look at infrastructure, to look at what we need in energy and all those things that we require to have holistic developments, that is what we shall take home, as invisible as it might be, but as important as we have stressed to these institutions. Thank you.
Mr. BÜNEMANN: Thank you very much. Time is really running short, so I will just take one more question.
QUESTIONER: I would like to ask Minister Michuki, as Kenya is one of the African economies that is more inserted in the global financial community and the global system, in terms of capital flows, what has been the impact of this financial crisis?
And also rapidly to Minister Menye, we have been hearing here at the IMF that the recommendation to donor countries is not to cut aid. I know it is one of your concerns. I would like to know if you have seen that aid has been cut already.
Mr. MICHUKI: Mr. Chairman, I think it is too early to judge the flows or lack of flows of aid. We at least hope as a starting point that what we have agreed with the donors so far in their ongoing budgets will continue and will remain intact. That is one hope.
Perhaps, Mr. Chairman, I should elaborate on what I was saying about our imports. We welcome very much what Britain has done to guarantee accessibility to credit facilities to everyone in Britain; that is to say that the purchasing power that was going into the purchase of flour, tea, and coffee is guaranteed. Thank you.
Mr. BÜNEMANN: Thank you. Minister Menye, you have the last word in this round, I think.
Mr. MENYE (THROUGH INTERPRETER): I think that you have to put the question on aid on two levels. Today, African countries have support given to them by their traditional donors, and you will remember that during the statements of Gleneagles it was said that aid was going to be increased by fresh funds, new funds, and this beyond debt cancellations and what came out of the Paris statement, declarations.
I am not saying here that the aid has been cut, but we see that the needs, in order to get certain economies started, are incompatible or greater than what we received. We were talking about agriculture a while ago. These are new sectors for the World Bank. The World Bank had discouraged countries for many years: It had said, well, we are going to invest in the social sectors, we have done that, but we cannot feed children because there has been almost no funding going to agriculture.
So, this is a new volume of aid which will be needed. I am happy to see that IDA 15 called for more resources for infrastructure and agriculture, but I think we have to go further than that if we do not want to have another crisis in a few years, because there will be less rice and wheat on the market.
I am not saying that the current crisis has had an impact, because we cannot evaluate yet what the impact will be on aid flows. I am thinking that it is better to keep the umbrella for yourself rather than giving it to your neighbor when you are not protected.
So, I think that people in advanced countries are facing difficulties because of these situations and those countries are not going to run to Africa to help us when their taxpayers cannot fund their own lives. So, that is why I was mentioning this. Thank you.
Mr. BÜNEMANN: Thank you for taking the time in your busy schedules to share your views with us, thanks to all three Ministers. This press briefing is concluded. Thank you.