IMF Survey: Africa Needs New Engines to Drive Post-Crisis Growth
November 23, 2009
- Hard-earned flexibility to ease policies should damp crisis impact in Africa
- Weaker countries to rely on higher aid flows to cushion the vulnerable
- IMF working to ensure that lending programs allow countercyclical policies
Africa will need new engines to drive strong growth in the period following the global financial crisis, IMF African Department Director Antoinette Sayeh said.
AFRICA IN 2010
She told a Washington think tank that a return to the unusually supportive pre-crisis global environment cannot be taken for granted.
Speaking on a November 19 Brookings Institution panel on African growth, Sayeh noted that the latest IMF projections suggest the global economy is beginning to grow again but cautioned that the recovery is uneven and remains dependent on policy support.
“Measures to improve the business environment, to develop well regulated capital markets, to increase labor productivity, and to enhance efficiency in the public sector are always important but will be even more so in sub-Saharan Africa in the months to come,” Sayeh told the meeting. Other panel members were U.S. Treasury Acting Assistant Secretary for International Affairs Andrew Baukol and Corporate Council on Africa President Stephen Hayes. The event was moderated by Brookings Senior Fellow Mwangi Kimenyi.
Projections from the IMF’s latest Regional Economic Outlook for sub-Saharan Africa show countries in the region are being hit hard by the crisis, Sayeh stated. But she added that Africa’s economies were responding better to this crisis than to past slowdowns.
In better shape
In previous downturns, countries had very limited room for maneuver in responding to global economic slowdowns. Budget deficits were typically large and monetary policies too loose, leaving countries very vulnerable going into past crises. But most countries were in much better shape at the outset of the current downturn, Sayeh observed.
Budgets for the region as a whole were broadly balanced in 2008, debt levels were lower than in the early 1990s, inflation was under control in much of the region, and as a result countries had accumulated much larger reserves overall.
“This hard-earned flexibility to ease policies should help to dampen the adverse impact of the crisis on poverty and social indicators. But the key to success will be how this policy space is being used on the ground,” Sayeh said. “Is it being used, for example, to protect social spending or sustain critical infrastructure projects?”
Sayeh stressed that not all countries were in a position to ease policies during the crisis. For some countries where economic fundamentals were weaker, there has simply been no room to use macroeconomic policies to support short-term growth. These countries will be heavily reliant on higher aid flows to mitigate the impact of the slowdown on vulnerable groups.
More IMF financing
Turning to the IMF’s response to the effects of the global crisis in Africa, Sayeh noted that the institution has sharply increased concessional financing to low-income countries over the past year. Through October 2009, new IMF commitments to sub-Saharan Africa reached more than $3 billion, compared with around $1 billion for the whole of 2008 and only $200 million in 2007. By the end of 2009 the IMF should have lent sub-Saharan Africa a little more than $4 billion, Sayeh said.
The IMF was doing more in the way of providing financing, beyond support through programs, Sayeh stressed. Financial support had been provided through a special allocation of Special Drawing Rights (SDRs) of which sub-Saharan Africa’s share was $12 billion. “Those countries are using those new SDRs to supplement their low level of reserves,” Sayeh said.
The IMF was also working to expand its lending to low-income countries as a whole to some $17 billion by 2014. The institution had increased the concessionality of its financing, had placed a moratorium on interest payments by low-income countries through 2011, and was also taking a more flexible approach to debt, Sayeh said.
Recognizing that different countries have different needs, the IMF had also introduced a variety of different lending windows to make lending more flexible and better tailored to the needs of the country.
Wider fiscal deficits
“We are working to ensure that IMF-supported programs do not prevent countercyclical policies,” Sayeh stated. She noted that fiscal targets had been loosened in close to 80 percent of African countries with active IMF-supported programs. On average, fiscal deficits were widening by 2 percent of GDP.
“The IMF has done its part, we think, ,” Sayeh said. “We have increased the amounts we lend and changed the way we lend. But we cannot do this alone—the international community has to pitch in.”
During questions from the audience, Sayeh was asked how the IMF addressed perceptions that sub-Saharan Africa was experiencing episodes of growth without development, in which improving macroeconomic statistics may not necessarily lead to higher living standards.
Sayeh said the IMF and other development partners had sought to tackle this issue in the late 1990s by articulating a broader poverty reduction strategy in low-income countries that aimed for both growth and investment in social sectors.
Sayeh was asked how the IMF planned to support African governments’ measures against corruption while also streamlining the conditionality of its loan facilities. She said the fight against corruption had many different dimensions among various development partners. The IMF focused on public financial management and the transparency of resource management, and invested heavily in transparent budgetary processes. The IMF had also been a strong partner in the Extractive Industries Transparency Initiative, Sayeh stressed.