Transcript

With Antoinette Sayeh, African Department Director
Washingtond D.C. October 10, 2008, 9:30 a.m.

Mr. BÜNEMANN: Good morning, welcome to this press briefing, the topic of which is the Regional Economic Outlook for Sub-Saharan Africa, and I also welcome those who join us online via the media briefing center and web cast. I am Niels Bünemann of the IMF's Media Relations Division, and I would like to introduce to you the four panelists. In the middle we have Ms. Antoinette Sayeh, Director of the African Department, and Ms. Sayeh is seconded by three Deputy Directors; to my immediate right, Ms. Benedicte Christensen, to the far right Mr. Saul Lizondo, and to the right of Ms. Sayeh, Mr. Mark Plant, all three Deputy Directors of the African Department.

We will now start with Ms. Sayeh's introductory remarks, and after that I will open for questions either from the media briefing center or from the floor.

Ms. SAYEH: Thank you, Niels. Good morning. Welcome, everyone. We see prospects for Africa as somewhat worse than they looked six months ago, reflecting headwinds from the global financial turmoil, increases in food and fuel prices, and slower world growth. Sub-Saharan African growth is expected to slow, to some 6 percent on average in 2008 and 2009, down from 6 1/2 percent in 2007. Meanwhile, inflation is projected to increase to 12 percent in 2008 and 10 percent in 2009. The growth projections are somewhat lower and the inflation projections markedly higher than in the April 2008 Regional Economic Outlook for Sub-Saharan Africa.

This worsening situation suggests three issues I would like to address before taking your questions. First, what are the implications of the current global financial turmoil for Africa? Second, does the food and fuel price shock remain a problem? And, thirdly, what are the risks for Sub-Saharan Africa going forward?

The main effects of the global financial turmoil so far appear to be indirect in the form of slower global growth and volatile commodity prices. However, clearly the recent heightened turbulence raises the risk including of a decline in resource flows to Africa in the form of private capital remittances and even aid.

Does the food and fuel shock remain a problem? Absolutely. We should not lose track of the fact that it remains a major challenge in many countries in spite of the recent easing of oil and food prices. Higher prices have put upward pressure on inflation and current account deficits and hurt the poor in many countries. Meanwhile, donor support has not risen to cover the larger import bill. We have identified the hardest hit countries and provided extra financial support to a number of them, including, for example, Malawi, Madagascar, and Togo.

With food and fuel prices substantially off recent peaks, it should be easier to fully pass through higher prices to the economy to encourage the needed adjustment. Measures to cushion the impact of higher food and fuel prices on the poor need to be well targeted and also better supported by donors. Senegal, to pick one example, is working to make its efforts more efficient in protecting the poorest. For oil exporters, a particular challenge is to preserve a medium-term perspective. Cautious use of oil revenue windfalls permits the smoothing of fiscal spending in the face of price declines as well.

What are the risks, then, for Sub-Saharan Africa going forward? There are unprecedented risks to the global economic outlook, and the resilience of Africa's remarkable growth takeoff of recent years is being put to a test. Countries need more than ever to be able to preserve macroeconomic stability in the face of exogenous shocks. Those countries facing inflationary import price shocks, declines in the terms of trade, and lower remittances and private capital inflows face an especially acute challenge. In this difficult environment, it is imperative to maintain or increase aid flows to Africa.

Now I invite your questions. Thank you.

QUESTIONER: You spoke about the indirect effects currently, and I was wondering what the actual credit crunch could affect and how that could affect, for example, commodity purchasing financing and commodities project financing. I mean, are those sorts of areas where Africa could now be feeling effects?

Ms. SAYEH: Absolutely. There are several channels we see for impact on Africa of the current crisis. On credit, of course, to the extent that credit conditions in international markets are as difficult as they are, it will certainly be more challenging for profitable projects even to receive funding in Africa, and with declines in commodity prices, those projects, of course, look less profitable than they would have otherwise, so that is certainly a concern of ours. There have been some countries that have benefited quite a bit in the recent past from significant FDI, including Madagascar and other countries, so we certainly are concerned about that. We are concerned, of course, just overall in terms of the impact on commodity prices, given the dependence of African countries with their major exports being commodities, and the impact on their economies that that will have. Remittances are very important for some of the poorest African countries actually, and so down the road remittances, even tourism, may be affected and affect African countries as well. Aid, we worry about aid flows, and we are very concerned by some signals recently that countries may be considering, the developed countries could consider reducing their aid flows as a part of their own adjustment effort. That we think would be absolutely the wrong thing to do, given the huge challenges remaining in Africa. All of this comes at a time, of course, when Africa has adjusted and reformed itself significantly over the past decade in particular, and as a result grown quite a bit. The consensus around reform that we have seen develop in Africa over the past decade or so risks being undermined if aid is not sustained. We know already from the food and fuel price shock that possibly some 100 million people across the world, based on World Bank estimates, may have fallen into poverty. Malnutrition has gotten significantly worse, and we know that that has very long effects on children going forward, so for all of these reasons it is very important at this very difficult time for the world economy as a whole that we keep our focus on Africa and the need to continue to support very good reform efforts there.

QUESTIONER: I have two questions. The first one is that because of this crisis are we about to see or is there a possibility of capital flight from poor African economies to developing markets?

And the other one is, is this the time for Africa to look more east in terms of commercial and economic ties, let's say, with emerging economic powers like China and India? Thank you.

Ms. SAYEH: Thank you for that question. African countries, of course, differ in their degree of integration with the international capital markets, and for some countries there is a significant possible impact down the road, including from their relations with parent banks that may currently be stressed and may be therefore taking out balances from their branches in African countries, and so there are impacts in that way. Capital flight, you know, would therefore differ depending on the nature of the economy in question.

Whether Africa should look more east? I think we are very encouraged by new partners that are interested in providing support for Africa. The more support that Africa has to deal with its enormous challenges, the better for the continent it is in terms of its growth prospects. We have been, of course, very much in dialogue with our African member countries in thinking through some of the challenges they have, in particular in infrastructure and the fact that concessional resources continue to be very constrained for financing infrastructure, and under the circumstances countries have been concerned about whether they have the ability to tap into non-concessional resources that may be available from new partners. We certainly want to look at that in the context of an effort to safeguard the very real achievements made in the past decade or so on debt and debt relief, and to make sure that African countries do not find themselves, a few years hence, back where we all worked very hard to get out of. So borrowing in a sustainable fashion is very important for Africa's long-term growth prospects as well, and we want to make sure that we continue to have a very open and productive dialogue about the prospects for drawing on nonconcessional flows. We have this Sunday, I should say in that context, a follow-up discussion from our dialogue with African Governors in Mauritania earlier in August to look at the issues around nonconcessional financing for Africa and the limits in Fund-supported programs that African countries have raised questions about. Thank you.

QUESTIONER: In a staff paper of the World Bank from the 1st of October it is questioned whether China will invest the money they already pledged to some African countries. Do you have any signs that China will hold up the money they already promised?

The second question is, the turmoil of the international markets will not infect Africa very much, that is what the paper also says. There is only one thing, that Barclays is probably a risk for Africa, is it true?

Ms. SAYEH: Well, I am not familiar with the particular paper you refer to that the Bank may have issued on the 1st of October. Whether China holds up its investments in Africa of course will depend on some of the issues I was flagging earlier. Chinese investments, as other investments, are attracted by returns, and those returns, of course, in the current environment may be affected by declining, weaker commodity prices so some projects that looked profitable in the past may not look as profitable, so one can see that Chinese investors, as other investors investing in natural resource endeavors, for example, may see things differently than they did before. I do not have any information that that is in fact happening. We have not been privy to information that suggests that China will be reducing its investments in Africa.

I think I should turn to one of my colleagues to see whether they want to add to that as well. Mark, maybe you can take that up.

Mr. PLANT: On the China question, we have not had any information. I think these are decisions that are going to be made over the next six months to a year, so I think it is something that we will have to monitor very carefully. As far as, again, whether the international turmoil will affect Africa globally, it is a bit of a waiting game because the investments in Africa tend to be longer term investments, they are more foreign direct investments than equity investments or debt positions, and so the types of turmoil you are seeing in the international markets are not immediately impacting Africa. Where the impacts are going to come is down the road when people start making longer term investment decisions and we start seeing the impacts of the current crisis on commodity prices, on growth in general, and that is very uncertain as to how that is going to unfold, so I think it requires vigilance on the part of African leaders as we go forward to keep their eye on the medium term but realizing that, if you will, the waves that are being generated by this current crisis may wash up on African shores over the next six to eight months, and we will just have to watch carefully how that happens.

QUESTIONER: My question goes to Antoinette Sayeh. Thank you for your preliminary statement. I would like to know your reaction about what emergency proposals do you have for the Saharan countries, emergency plan, to cope with this financial crisis, food crisis and other things? Do you have any emergency plan for our region? Thank you.

Ms. SAYEH: Thank you very much for that question. The Fund has already been working quite closely with a number of Saharan countries in the context of the programs we are supporting to help them deal with the food and fuel shock in particular. In that context we have taken to our Board a number of augmentation of current PRGF programs to make additional resources available to Sahalian countries -- Burkina and others. We are in very close dialogue with countries about the measures that they have taken to try to mitigate the impact of the shock on their poorest citizens, and in that context, we keep underscoring the need to better target some of the initiatives that have been put in place because those in terms of the suspension of tariffs on food in particular have been nontargeted and costly to their budgets, further limiting their ability to finance additional much-needed investments in the social sectors, for example, so we are in very close touch with Saharan countries, almost all of which are in programs with us.

QUESTIONER: Do you have a budget for that, a global fund? How much money do you think it will involve? You know for the emergency plan. Do you focus any budget plan, for example $10 million, for example, or something like that? How much money do you envisage?

Ms. SAYEH: Well, we have an estimate of the additional financing needs that countries may face under different assumptions about their commodity prices and the pressures on their budgets, and in that context, those financing gaps are known, and we work with countries to make sure that we mobilize as much funding for those gaps as possible through their own domestic efforts, of course, but also from external aid. It differs by country, so I cannot give you a global figure for each, that will be the same in each country. Those financing gaps differ, but they have been increased by the fact that countries, especially oil-importing African countries, have been affected both by the fuel and the food shock.

QUESTIONER: You have commended Senegal efforts toward the poor to tackle, to mitigate the effects of the fuel and commodities price, but it seems that has presented with serious fiscal slippages that have jeopardized the program with the country, so how can you reconcile the two that the efforts that you commend have put serious problems into the country and the program? Thank you.

Ms. SAYEH: Thank you for that question. I will start answering it, then turn to Benedicte Christensen, who is our reviewer on Senegal, who may want to add more. What I was referring to was this issue of targeting, targeting of social safety net programs and programs to deal with the impact of the shock on the poorest. There have been significant fiscal slippages under the PSI program with Senegal. We have been working with the government to put in place, to identify a number of measures to address those slippages. I was not referring to that, but rather to the narrower question about how to better target initiatives to mitigate the impact of these shocks on the poor, but let me turn to Benedicte and have her say a bit more about our program on Senegal.

Ms. CHRISTENSEN: Yes, first, Senegal responded to the food and fuel price shocks in part by reducing some tariff and taxes, which was also in line with what was done by other countries in the region, and as Ms. Sayeh mentioned earlier in her introductory statement, we encourage more targeted measures which do not benefit all segments of the population, but in particular the poorest parts of the population. Actually Senegal was one of the first countries to also rescind those measures and to introduce more targeted measures. They are trying to target, for instance, the feeding of schoolchildren, and this is the kind of approach that we would recommend also in other countries, i.e., more targeted approaches.

QUESTIONER: I am going to ask my question in French.

QUESTIONER: [Through interpreter]. I have the following question. I come from a newspaper in Côte d'Ivoire. Some countries are coming out of the crisis, Côte d'Ivoire is one of them. Actually there are quite a few countries coming out of the crisis in West Africa. Now, with this crisis, I would like to know how these countries could be helped by the IMF in order to fully pull themselves out of that situation, particularly in view of demographic growth.

Ms. SAYEH: Thank you very much for that question. There are a number of post-conflict countries, as you say, Côte d'Ivoire among them, trying to deal with the major challenges that come from their post-conflict status, and at the same time being hit by the crises we have just been speaking about. The Fund has been working, in partnership with the World Bank and our other partners, to have these countries have as rapid an access to debt relief as possible because many of them are afflicted by significant debt burdens, and so in the case of Côte d'Ivoire we are working very hard with the government to hopefully see Côte d'Ivoire come to the decision point under the HIPC initiative as soon as possible, hopefully by the end of this year or early in the new year. In Liberia, as you know, the Fund was very instrumental in working with the Liberian authorities in getting debt relief for Liberia, a significant challenge given the fact that Liberia, as Somalia and Sudan and other countries were not part of the initial financing made available for debt relief for the poorest countries. In Togo, for example, another country, not a post-conflict one, but being a so-called fragile country that has been afflicted with many challenges over the years and no external support, Togo has done a lot to deal with its own political issues and has been doing quite well recently under a program with the Fund, and we have been working very hard with Togo to also get them debt relief and to encourage donors to make more resources available to them. Togo just had a very encouraging donors conference in September that we expect to follow up and make sure that donors come through with the support they have promised to these most fragile countries, so a combination of additional support made available on a timely basis, and that is extremely important in post-conflict environments where it is important to show results quickly, so donors have to be able to deliver quicker in those environments, and we continue to encourage donors to do better in their support. Thank you.

QUESTIONER: Can you give us some examples of the countries which are going to be most affected by the financial crisis? Second question, what is the economic outlook for West Africa generally speaking? Thank you.

Ms. SAYEH: Okay, the crisis, of course, is evolving by the day, and we are in the process still of trying to assess going forth what we think the impact will be on African countries, and as I was saying before, it will differ by their degree of integration into the international market, whether they are oil exporters or oil importers, whether they have benefited in the past from significant FDI, foreign direct investment, or not, and whether those stand to be reduced, a number of factors. So it is very difficult at this point, I think, to say exactly which countries will be affected and how. But clearly there are some countries that are more integrated into the international capital markets than others, and those countries we worry about.

I think I will stop there. I do not know, Mark, would you want to add to that? I think that is fine.

On West Africa, as we were just speaking about in the case of Côte d'Ivoire, there are countries emerging from conflict in West Africa, so we see in Côte d'Ivoire, for example, growth picking up, and that is one of the factors underpinning the less depressing projections we have for 2009 perhaps than you would otherwise think. Côte d'Ivoire we think will do a little better. There are other countries, much smaller countries, like Liberia, for example, that are also emerging from conflict. Ghana has been growing quite well in the past. There are some issues around the sustainability of some of the policies that are being pursued that we are in dialogue with, with Ghana and others, but I think broadly West Africa continues to be very dependent on commodity exports, as you know, and so what happens there will have -- what happens to commodity prices will have a lot to do with the outturn there.

QUESTIONER: Earlier in your statement, Dr. Sayeh, you talked about preservation of macroeconomic stability in this financial crisis. I am wondering, how can post-conflict countries like Liberia, which is still depending largely on donor support and bilateral aid sustain or achieve this preservation of macroeconomic stability just in case aid is cut?

Ms. SAYEH: The challenges are significant in post-conflict environments. I will not speak specifically to Liberia, in fact I will leave it to one of my colleagues to say a bit more on Liberia. But in a context I was talking about just a minute ago -- the burden of the debt in a country like Liberia, and that is significant and limits Liberia's ability to make progress on a sustainable fiscal program -- debt relief is needed in that context to help with the issues of macro stability but also to help with creating fiscal space for a post-conflict government like Liberia to do more in the way of additional resources that are needed in health and education, to start the very long process of trying to rebuild infrastructure and all of those things, so macro stability in the way of manageable fiscal deficits and limited inflation are important in the context of trying to attract investments into post-conflict environments, investments that are really needed to create jobs. So macro stability is just as important or maybe even more so in post-conflict environments; how to get to it of course is what we struggle with in the context of limited donor support for those efforts, in particular. But let me turn to Mark again if you would like to say something on Liberia.

Mr. PLANT: Growth in Liberia in 2008 and 2009 we expect to remain fairly buoyant, simply because they are coming out of the difficult situation they have been in, and they are tracking in many ways what we have seen in other post-conflict countries, that there is a period of growth as they get out of conflict and begin economic productivity again. The risk in Liberia is inflation. I think this is going to be a risk that you will see in many African countries, but particularly post-conflict countries that are heavily dependent on imports of petroleum products and of food, and so that will require again an increased vigilance on the part of the monetary authorities, the fiscal authorities to ensure that spending continues but it is well targeted, and that it addresses those people that are hit by inflation the hardest, in some sense it doubles up the ante, it makes the management situation a bit more difficult, and I would echo what Ms. Sayeh said earlier, it underscores the importance of aid continuing to these countries, particularly those in the most vulnerable situation.

QUESTIONER: I have two small questions. One is: do you have a comment on, a view on the trend of Middle Eastern countries coming into Africa and buying up land for their own food security, like Abu Dhabi in Sudan or Saudi businessmen making deals in Somalia. Do you have a view on whether this is a positive or negative trend, and in terms of the donor funding, do you have an exact figure on how much donor funding is needed, for example, over the next year and how much this might fall short due to the credit crunch? Thanks.

Ms. SAYEH: I would say -- in brief -- no to both. I do not have any specific information on Middle Eastern investors buying up land in African countries, but clearly if investors are bringing in needed capital into those countries and adding to the level of investments in those economies, it should be broadly positive. The specifics, on what terms they are buying land and whether they are below market or not, I do not know, and so I cannot say what is the possible impact on the people they may be buying the land from, but investments in land are welcome, investments in land to generate productive agricultural production is even more welcome in a context where countries are trying to adjust to a shock from the the food price crisis, and so it is important to expand agricultural production in African countries. If investments are going into land for that purpose, certainly it would be positive. If that is the case, we welcome that.

Donor funding over the next year in terms of exact numbers, again I do not have off the top of my head numbers on that. We are still, as I was saying before, in the process of trying to estimate what we think the impact of the crisis will be. I think it is early to have specific numbers overall for all African countries. We have done estimates of what the food and fuel price shock will cost African countries. We have made that available in the past, and perhaps we can do so again, but going forward in terms of the impact of the financial crisis, we will be updating our assessments of financing needs for African countries down the road.

QUESTIONER: If I could come back to the issue of portfolio inflows and in this case potential outflows, a couple of years ago when we had a situation of excess liquidity, portfolio investors in the search for yield went into what we call frontier markets, and Africa certainly attracted a significant portion of those inflows. In terms of countries, we saw large inflows in places like Nigeria which, given the hazard of the economy and given the level of foreign reserves may not be so much of a problem now, but we also saw significant inflows in countries like Zambia, Uganda, and to a lesser degree Tanzania. To what extent is this a subject of concern to the IMF and is there any kind of coordinated plan action together with the central banks if there were problems in terms of capital outflows and the impact of the currencies?

If I could just have a second question, it has long been established that there is a positive relationship between the deepening of financial markets and economic growth. To what degree do you believe the current crisis is going to deter the opening of certain markets in Africa, places like Angola, Tanzania, Mozambique to foreign investors. Thank you.

Ms. SAYEH: Well, just to start by taking the latter point, and it is linked to the question we were responding to earlier in terms of the possible impact on commodity prices and the profitability of investments in natural resources and in other areas that have looked very attractive before and where we have been seeing some foreign direct investment, so we are concerned, of course, that there may be less of that going forward. For the countries you talked about, that have received significant portfolio inflows in the past, we also worry that some of that may dry up and may be reversed, and we are in dialogue with our member countries on efforts they need to put in place to be prepared for shocks of that sort. We will be working with a number of them in assessing their individual vulnerabilities, including their banking systems and how vulnerable those are and what policies to put into place to make sure that their efforts to achieve macroeconomic stability and reform are sustained through this very difficult period. Some of those efforts will require responses on the monetary and fiscal side from themselves, efforts on their own financial sectors to strengthen their financial sectors as well, but clearly they will require financing in some countries to tide over the crisis, so we are certainly working with them on all of those. I wanted to ask Saul Lizondo, Deputy Director, to maybe say a little bit about how we see the impact of the possible capital flows, outflows affecting.

Mr. LIZONDO: Okay. In particular we can look at countries like South Africa in which capital inflows and portfolio inflows have been very important to finance the current account deficit; I would say that probably that is the main risk in South Africa at this moment, there is a current account deficit about 8 percent of GDP, and capital inflows have slowed down recently, and there is of course some risk that there will be an outflow. In that case, although South Africa still has a significant level of reserves, there would have to be some adjustment in the economy to try to absorb these capital outflows. In our projection, we are projecting some slowdown in growth to around 3 percent for next year; whether we need to adjust those projections or not will depend also on what happens with capital flows.

Now, I must say, that in terms of the situation with the financial system in South Africa is different from what you can observe in other countries. There has been very little financial contagion from this turmoil so far at least. Banks in South Africa have very little exposure to these toxic assets. In some cases it could be because of capital controls that are in place but also because of strict regulation. Also, banks in South Africa have a limited dependence on foreign borrowing, and most of the sources of funds are domestic, and they also have very little exchange rate risk, so all this volatility in the exchange rate is not affecting directly the balance sheet of the banks. Nevertheless, of course, one has to be careful because surprises in the financial system can appear from unexpected sources..

QUESTIONER [Through interpreter]: We think that the aid of the World Bank, even if it is a great help, is insufficient for Africa, the poorest of all continents in spite of all its potential and resources. I have a question that might sound naive. Do you not think that Africa deserves a Marshall Plan as happened in Europe after World War II?

Ms. SAYEH: There is no such thing as a naive question. Maybe we do not call it a Marshall Plan, but we have certainly been talking about the need to scale up aid significantly in Africa in order to help countries have a chance at reaching the Millennium Development Goals, so we have certainly made the case that significant effort at scaling up aid is necessary and is in fact manageable in a macro context for a number of African countries. In that context we continue to encourage donors to live up to their commitments from Gleneagles, certainly at a minimum not to reduce what they are already giving to the poorest countries, but there is a significant need for scaling up to deal with all of the challenges the poorest countries face on infrastructure, a huge need to make additional resources available to be able to unleash the growth potential of Africa. So, Marshall Plan or not, but certainly a need to significantly scale up aid.

QUESTIONER: I wanted to address the issue of monetary policy because at the moment that is what everybody is talking about not only in the advanced world but also the developing world. The question is specifically on South Africa. Do you think that South Africa can afford to keep its rates high, and what do you think is causing this volatility in the South African rand and what is your forecast for the rand?

If I might also on Zimbabwe, is the Fund considering reengaging with Zimbabwe again? Would there be a donor conference? How would this recovery take place and how do you see it take place, especially considering the current situation in the global market?

Ms. SAYEH: Let me start with Zimbabwe and maybe turn over again on South Africa. On Zimbabwe, we have been of course watching as others and hoping for a solution that helps Zimbabwe to get beyond the significant crisis it has been in these many years and to make it possible for the international community to help Zimbabwe begin what will be a long-term effort at reform. The Zimbabweans are still in the process of trying to sort out their government, and we certainly have been preparing to help them. We are ready when they are, to begin the effort to try to clear Zimbabwe's significant external arrears, to make it possible for financing to become available for Zimbabwe, to help Zimbabwe deal with the huge hyperinflation that it has, to help put in place a program that helps, start to address that. So we are in a waiting mode, getting ready to help. Zimbabwe is a huge challenge and will be for all of us, the international financial community. In the same way that it took creativity to find financing for Liberia's debt relief, for example, it will take a lot of creativity to deal with the challenge of Zimbabwe, but we are ready, and we are waiting.

Mr. LIZONDO: As you know, yesterday the central bank decided to keep the interest rate, the repo rate at 12 percent in South Africa. We think that was the right decision. To put the question in context, South Africa has an inflation target of 3 to 6 percent and currently inflation is above 13 percent, so there is a need for tight monetary policy. At present actually the repo rate in real terms is negative. There are a number of factors that may help lower inflation in the way forward. There is a slowing global economy, a slowdown in domestic demand, and also the decline in world oil prices, if it were to be sustained, that would also help lower inflation. On the other hand, inflation expectations are high, wages are growing rapidly, core inflation is also high, and the depreciation of the rand, again, if sustained, is also going to push inflation up. So we think that for the moment, on balance, keeping the interest rate at 12 percent was the right decision.

Mr. BÜNEMANN: Thank you very much. Thank you for all your QUESTIONERs and thank you to the panelists. This press briefing is hereby concluded. The reports are available and everything is free for release. Thank you.

[10:14 a.m.]