Africa: A Window of Opportunity - Address by Mr. Alassane D. Ouattara
IMF News, May 12, 1999
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- Published: May 12, 1999
Global economic backdrop and risks
- IMF is looking for world growth of around 2.3 percent this year.
- With sound policies and some luck, growth could:
- rise above 3 percent next year, and
- reach 4-4 1/4 percent early in the new millennium.
- Positive developments noted:
- Asian economies showing signs of nascent recovery.
- Spillovers from Brazil’s financial crisis to markets elsewhere in Latin America have generally been moderate.
- Investor sentiment toward the emerging markets has broadly improved.
- The U.S. economy continues to be remarkably robust.
- Downside risks and unresolved questions that could disappoint global growth:
- Can the United States achieve the soft landing it needs?
- How soon can Japan expect to see the long-awaited and expected recovery?
- Can Europe breathe new vigor into its flagging economic expansion?
- Can the turnaround in the emerging markets be sustained?
- Will the uncertainties in Russia be satisfactorily resolved?
- Policy message: there is no room for complacency.
Recent African performance and outlook
- After two decades of stagnation, Africa’s economic profile has improved markedly in the past four years.
- Growth and income indicators:
- Average real growth in sub-Saharan Africa—excluding Nigeria and South Africa—has risen from about 1 percent during 1992-94 to about 5 percent during 1995-98.
- Real incomes have risen: 40 out of 47 African countries now showing increases in their annual per capita incomes.
- Inflation has been lowered markedly; internal and external imbalances have been greatly reduced.
- IMF projections for Africa:
- projecting slower growth of about 3-3.5 percent this year, due to sluggish global growth and weak commodity prices,
- but picking back up to 5 percent in 2000.
- Structural progress:
- Substantial progress in freeing the private sector from government controls on prices, marketing, international trade, investments, and foreign exchange.
- Increased market access and groundwork for better integration into the world economy.
- Growth needs and targets:
- Africa needs growth rates of at least 6-7 percent just to keep up with the expected increase in its labor force.
- A growth rate of 8-10 percent would be more appropriate to make a dent in poverty over the long run.
IMF initiatives to help Africa
- Heavily Indebted Poor Countries Initiative (HIPC):
- Working to provide more debt relief to a broader range of HIPC countries.
- Emphasis that debt relief must be paired with incentives for strong adjustment and reform, investments in education and health, poverty reduction, and a clear exit from unsustainable debt burdens.
- ESAF (Extended Structural Adjustment Facility) and financing:
- ESAF’s objective: sustainable development with a focus on poverty reduction.
- IMF management and staff working to secure full financing of the ESAF and HIPC, including bilateral pledges and contributions from the Fund’s own resources.
- IMF member countries have indicated willingness for the Fund to play a part through the sale of some gold; commitment to avoid disorderly developments in the gold market after any decision.
- Post-conflict assistance:
- Special policy since 1995 to provide emergency post-conflict assistance—Republic of Congo, Rwanda, and Sierra Leone were early beneficiaries.
- IMF Executive Board agreed on steps to improve terms of post-conflict assistance to poorest members, including greater access to Fund resources over a longer period in some cases.
- Special circumstances of countries with large protracted arrears can be taken into account in arrears strategy implementation.
- Expectation that many poor post-conflict nations will eventually avail themselves of the HIPC Initiative.
- IMF stresses the need for international community support for countries with refugee problems and emphasizes that peace is the ultimate solution.
- Training and technical assistance:
- IMF Institute expanding training activities for African officials and supporting regional training and research institutions (e.g., Macroeconomic and Financial Management Institute in Harare; South African Reserve Bank for SADC members).
- IMF, African Development Bank (AfDB), and World Bank announced establishment of a regional training institute to be located at the AfDB’s headquarters in Abidjan.
Strengthening the global financial system
- Two broad themes for remedying crises:
- Preventing crises by devising new "rules of the road".
- Ensuring contagion is contained and human costs limited when crises arise.
- Transparency and standards:
- IMF strengthened data dissemination standards, especially on international reserves and external debt.
- Encouraging adherence to the code of good practices on fiscal transparency and working on a similar code for transparency in monetary and financial policies.
- Increased IMF transparency (reference to IMF website).
- Benefits of transparency: broader public discussion, enhanced accountability and credibility, and more orderly functioning of financial markets.
- Financial sector strengthening:
- Encouraging incorporation of the Basle Core Principles into banking regulation; assisting countries to improve supervision and reinforce financial institutions.
- Capital account liberalization:
- Consensus leans toward more open capital markets as the norm, but the Asian crisis showed the need for orderly, properly sequenced liberalization tied to stronger domestic financial systems.
- Private sector involvement in crisis prevention/resolution:
- Complex area with progress but many contentious issues; need mechanisms to avoid rush-for-the-exits by creditors and to encourage orderly adjustment.
- IMF financial instruments:
- Executive Board approved establishment of Contingent Credit Lines—precautionary financing for countries with sound economies but threatened capital market access—to enhance stability.
- Social safety nets:
- Asian crisis highlighted the need for pre-existing social safety nets.
- IMF has taken an increasingly active stance on social policies, expenditures, and safety nets, and will continue collaboration with AfDB, World Bank, and UN agencies.
Five key policy priorities for Africa
- Consolidating macroeconomic stability:
- Consistent implementation of sound fiscal and monetary policies.
- Ensuring economic security:
- Remove investor uncertainty; guarantee transparency, predictability, and impartiality of regulatory and legal systems.
- Emphasize competence, integrity, accountability, and tackling corruption and inefficiency.
- Release of Letters of Intent and Policy Framework Papers by an increasing number of African countries encouraged.
- Strengthening the financial sector:
- Mobilize savings, deepen and broaden financial markets, ensure independence and accountability of central banks, strengthen bank supervision, open banking sectors to healthy international competition, establish well-functioning payments systems.
- Speeding up trade liberalization:
- Simplify and lower tariffs; bind tariffs at the lowest rates in the upcoming WTO trade round; remove nontariff barriers.
- Industrial countries urged to open markets for African comparative advantages (agricultural products and textiles).
- Support for proposal that industrial countries grant across-the-board, duty-free access for exports of the least developed countries.
- Deepening regional integration:
- Simplify complex and overlapping regional arrangements to realize economies of scale, overcome small and landlocked economy disadvantages, and enhance global trade ability.
- Regional integration should not come at the cost of further overall trade liberalization.
Closing message and call to action
- The recent crisis period appears to be yielding a brighter outlook—a "light of hope and new opportunities."
- Africa is urged to seize the moment to fully integrate into the world economy so that its people can prosper and flourish in the new millennium.
Source: Africa: A Window of Opportunity - Address by Mr. Alassane D. Ouattara; May 12, 1999.