GLOBAL FINANCIAL CRISIS AND AFRICA
Stronger Policies Helped Africa Through Global Crisis
IMF Survey online
February 18, 2010
- African countries have come through crisis better than in past
- Critical for African countries to raise growth performance further
- Progress also required in improving business climate
Stronger monetary and budget policies, together with structural reforms in many countries, helped Africa come through the global financial crisis better than in the past, IMF First Deputy Managing Director John Lipsky said.
Lipsky told members of Ghana's parliament in Accra that many African countries have come through the financial crisis not only better than they did in the past but also better than many other countries throughout the world. “In considerable part, this is because of the strengthening of monetary and budget policies, as well as structural reform in many countries.”
“African central banks started the crisis with stronger international reserve positions than in the past, providing a cushion against balance of payments shocks,” Lipsky stated. “Debt relief from the IMF and many others also has helped, because it freed up resources that could be used to improve the business environment, invest in infrastructure, and support the poor.”
Lipsky spoke in Accra February 17 to an audience of more than 100 economic think tank members, academics, youth leaders, labor leaders, civil society groups, and international organization officials on the second leg of an African tour that also included a visit to Liberia. IMF Managing Director Dominique Strauss-Kahn is scheduled to visit Kenya, South Africa, and Zambia early next month.
Legacy of global recession
With a legacy from the global recession of sluggish growth and higher poverty, it will be critical for African countries to raise their growth performance further, to help accelerate job creation and boost incomes, Lipsky said. This will require additional progress in improving macroeconomic management and the business climate.
The global recession has created very real cost for Africa, Lipsky said. After averaging more than 6 percent growth since 2002, last year African countries averaged just 1 percent growth. That meant per capita income actually fell by 1 percent—the first decline in African living standards in 10 years.
Lipsky noted that one of the IMF’s first responses to the financial crisis was to ensure that low-income countries had rapid access to IMF financing in order to strengthen their balance of payments—thereby helping avoid the sort of contractionary economic impact that would only make the downturn more severe.
“Last year, new IMF lending to sub-Saharan Africa was up almost five-fold from the year before, reaching US$5 billion. Interest rates on these operations for the most part are extremely low—through 2011, for instance, the interest rate for loans to low-income countries has been set at zero, and subsequently at just a quarter of 1 percent,” Lipsky stated.
More flexible approach
“And IMF loans are tailored closely to member country needs, so that we can disburse low-cost funds quickly when a country has temporary, urgent needs, or we can set up arrangements for disbursement over several years when this is appropriate. Our approach to how countries manage public borrowing today provides more flexibility in countries with strong macroeconomic and public debt performance and with well-developed debt management institutions.”
To relieve concerns about whether countries would be able to ride out the global financial crisis, IMF members approved a general allocation of Special Drawing Rights, or SDRs. The new allocation pumped some $250 billion into the world economy, spread across the IMF’s 186 members.
“The good news is that, through international cooperation among advanced economies on economic stimulus, the global economy is stabilizing, with evidence of resumed growth in many advanced economies. In time, this will also become increasingly evident in Africa,” Lipsky said.