IMF Survey: Africa's Better Policies Are Paying Off
June 28, 2007
- Africa's progress is foremost the result of better policies
- More dynamic private sector essential for boosting African growth
- IMF technical assistance central to strengthening countries' capacity
Ahead of the 2007 African Union summit in Ghana, IMF Survey magazine spoke to Abdoulaye Bio-Tchané, Director of the IMF's African Department, about prospects for the region and what the IMF is doing to help.
INTERVIEW WITH ABDOULAYE BIO-TCHANE
IMF SURVEY: How's sub-Saharan Africa doing this year?
Bio-Tchané: This is a moment of special opportunity for Africa. A confluence of factors is boosting economic prospects, with faster growth in the 5-6 percent range and low inflation at around 6-8 percent in recent years. The higher growth in the region is attributable both to positive external developments, such as strong export demand, and to strong investment and productivity gains.
This improvement is foremost the result of improved policies. Prudent macroeconomic policies and increased reform efforts in many countries in the region laid the foundation for the growth acceleration of recent years. The challenge now is to sustain and broaden the growth momentum.
A former Minister of Finance and Economy in Benin, Abdoulaye Bio-Tchané has been Director of the IMF's African Department since March 2002. He holds masters degrees in economics from the University of Dijon and in banking from Centre ouest-africain de formation et d'études bancaires in Dakar.
He began his career as an economist in the Central Bank of West African States (BCEAO) where he rose to become Director of the Economic and Monetary Survey Department, a post he held until he was appointed Minister of Finance in Benin in 1998. In the early 1990s, Mr. Bio-Tchané spent two years in the IMF's African Department, on secondment from the BCEAO.
Hopefully, a virtuous cycle of reform, stabilization, and growth is emerging in the region, paving the way for notable progress on attaining the Millennium Development Goals (MDGs).
IMF SURVEY: What are countries in sub-Saharan Africa doing right?
Bio-Tchané: First, African oil producers have saved a significant part of their additional revenue. This cautious stance is serving them well. It will allow them to judiciously raise priority spending—such as in the health and education sectors—but also increase investment in infrastructure as their capacity to absorb improves. And it minimizes the macroeconomic risks from the inflows.
Second, the recent commodity boom and rapid growth in Asia have improved sub-Saharan Africa's export prospects. The time may be ripe for the region to reverse the long-term decline in its share in world trade. Commercial exchanges with Asia, particularly China, have expanded dramatically—although European Union countries and the United States still account for 2½ times the exports that go to Asia.
Finally, improved macroeconomic performance and debt relief have altered the medium-term debt outlook for many countries. Domestic debt markets have become more active, and foreign portfolio investors are taking an active interest in several countries. Nevertheless, governments must stay on the alert to make sure that any borrowing on nonconcessional terms is consistent with keeping debt within sustainable limits, and is used only for productive purposes.
IMF SURVEY: So why won't the region meet the MDGs?
Bio-Tchané: Although Africa lags behind most other regions, progress is being made toward the MDGs. True, current growth rates are not fast enough to achieve the MDGs by 2015. Indeed, to reduce poverty by 50 percent, growth rates would need to be at least one, perhaps two, percentage points higher than they now are, and structural and other obstacles to meeting the non-income MDGs have not been addressed.
But, although meeting the MDGs may be unlikely for most countries in sub-Saharan Africa, some are forging ahead─Mozambique is a good example. Despite floods and higher petroleum prices, Mozambique's economy grew at 8.5 percent last year.
Thanks to consistently prudent macroeconomic policies and forceful reforms, Mozambique between 1997 and 2003 reduced poverty from 69 percent to 54 percent. It is the only African country where we have the good news that rural poverty has declined even more than urban.
Mozambique has also doubled the number of its children in primary schools, reduced infant and maternal mortality, and begun to provide antiretroviral treatment for its citizens who are infected with HIV. Mozambique demonstrates that with enough political and economic will, remarkable progress can be made.
IMF SURVEY: What's happened to the pledges of more aid to Africa?
Bio-Tchané: As you also know, the G7 at the Gleneagles Summit in July 2005 pledged to increase aid to poor countries by $50 billion by 2010. So far, with the current trend, this will not happen, especially in sub-Saharan Africa. Except in Nigeria, which is far from the poorest country there, official assistance to the region has basically remained flat since 2003.
This makes it all the more important for recipients to make effective use of the aid that is arriving. That is actually still quite substantial, averaging 9 percent of GDP and some 36 percent of government expenditures in sub-Saharan Africa as a whole (excluding South Africa).
"The fiscal space created by high levels of debt relief is supporting poverty-reducing spending"
Although more needs to be done, the international community has contributed quite substantially. The fiscal space created by high levels of debt relief is supporting poverty-reducing spending. But, as on the aid front, progress on improving trade access for African countries remains outstanding, including the conclusion of the Doha round and a reduction of subsidies on agricultural exports.
However, while aid is important, a more dynamic private sector is essential for raising African growth rates and making progress toward the MDGs. Improving the business environment in the region would go a long way toward fostering private sector activity.
Currently, entrepreneurs in sub-Saharan Africa face more regulatory obstacles than in any other region of the world, spanning the range of private sector activity, from licensing, employment, credit, and administrative transactions. The World Bank's Doing Business in 2007 report ranked 175 countries in overall ease of doing business; the average SSA country rank was 131.
Countries should be encouraged by the examples of South Africa, Mauritius, Namibia, and Botswana which are among the top-50 countries on the overall ease of doing business.
IMF SURVEY: How can aid be speeded up and made more effective?
Bio-Tchané: This will take teamwork between donors and recipients. Donors are already making commitments to make aid less difficult to use, more predictable, and better aligned with recipient priorities. Recipients in turn have committed to implementing better policies to use aid better and more transparently. The IMF is of course committed to support both in these efforts.
IMF SURVEY: More generally, what is the IMF doing to help African countries?
Bio-Tchané: The main challenge facing sub-Saharan Africa is to reduce poverty and make progress toward the MDGs. As I've said, to meet the MDG of halving poverty by 2015, sub-Saharan Africa needs to not only sustain the recent high rate of GDP growth—close to 6 percent per annum, compared to roughly half that in the 1990s—but to raise this growth rate to at least 7 percent.
Reaching other MDGs, for example in health and education, will also require that budgets become more pro-poor, and pro-growth, and that effective use is made of additional aid flows, including from debt relief.
The IMF is helping sub-Saharan Africa meet these challenges. The IMF's Medium-Term Strategy calls for a more focused engagement with low-income countries, by emphasizing areas where we have a comparative advantage. In other areas, we will have to collaborate more effectively with the World Bank and other institutions.
In our areas of expertise, we can help sub-Saharan Africa meet the challenge of reducing poverty by, first, advising countries on policies to effectively manage aid and preserve debt sustainability; second, promoting macroeconomic stability; third, helping countries carry out reforms in their trade regimes and in their financial sector, to take advantage of investment opportunities; and finally, assisting countries implement public financial management reforms to strengthen the effectiveness of budget formulation, execution, and accountability.
Our technical assistance—provided by headquarters staff or through regional technical assistance centers (called AFRITACs)—is central to strengthening countries' capacity in these areas. In particular, emphasis is being given to public financial management, financial stability, and effective monetary policy implementation and statistics.
IMF SURVEY: What about accusations that the IMF isn't doing enough to encourage aid flows, or is actually blocking aid use?
Bio-Tchané: The IMF is committed to helping countries achieve the MDGs. The Fund has been an advocate for development aid as well as free and fair trade. Over the past year we implemented the Multilateral Debt Relief Initiative, eliminating the debt owed to the IMF by 20 poor countries, and eventually for almost 40 low-income members.
Our policy advice, programs, and technical assistance have been geared increasingly to promoting growth and alleviating poverty. In particular, we have made a critical contribution to the stabilization and improved growth performance in sub-Saharan Africa over the past decade and other low-income countries. This lays the basis for sustained growth and real poverty reduction.
"We must develop more effective ways of engaging in the global effort to turn macroeconomic stability into sustained growth high enough to make a real dent in poverty"
At the same time, given the enormous challenges involved, it is hard to ever claim that we are doing enough. The key is, rather, to make sure that we are doing the right things within our core areas and that our activities complement those of low-income countries and their other development partners. That is the thrust of our Medium-Term Strategy.
Our main tasks are to support policies in the areas where the Fund has specific expertise, in order to promote macroeconomic stability, help countries reap the benefits from higher aid, and avoid renewed debt problems. But if our work is to do more than just lay the basis for high growth and poverty reduction, we will need to improve our collaboration with low-income countries' other development partners, especially the World Bank, and other donors.
The poverty reduction strategy process, the move by donors from project to budget support, and the emergence of new lenders have all reinforced the interdependence of our work with others. We must develop more effective ways of engaging in the global effort to turn macroeconomic stability into sustained growth high enough to make a real dent in poverty.