April 22, 2012
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Mr. Ntahwa Kuderwa, Acting Chairman of the African Caucus, and Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), co-chaired the African Consultative Group meeting today at the IMF Headquarters. They issued the following statement after the conclusion of the Group’s meeting.1
“We had a very productive discussion on the near-term economic outlook for Africa and the risks ahead. We agreed that growth is likely to remain quite robust in most of Sub-Saharan Africa, sustained by domestic demand and supportive macroeconomic policies. We noted that, in the near term, the economies of North Africa will continue to be affected by the uncertainties created by recent social and political changes in the region.
“We recognized that downside risks to the economic outlook are significant, especially in light of uncertainties related to the situation in Europe and risks to global oil supply. A weakening of the global economic environment would adversely affect Africa’s exports, foreign investment inflows, remittances, tourism, and possibly, official aid to the region, with negative effects on growth across the continent.
“Against this background, we agreed that, if growth remains robust, policies should focus on strengthening macroeconomic space. However, if the above risks materialize, policymakers should stand ready to respond with the aim of preserving economic stability and growth and protecting the poor. Countries with fiscal space and contained inflation would be in a position to ease fiscal and monetary policy if global demand were to slow, but other countries may need to strengthen revenue collection and exercise expenditure restraint while seeking external financing to avoid an unduly sharp adjustment. The erosion of fiscal space and reserves in North Africa limits the range of policy options available, although resort to external financing (including from the Fund) could provide more space for policy actions. Competitive devaluations and protectionist policies should be avoided.
“A surge in world oil prices would have significant adverse effects on oil importers. As a general principle, the burden of increases in oil prices should be borne by final consumers rather than the budget, with vulnerable groups being protected through well-targeted subsidies, transfers, or income support, although country-specific circumstances may affect the timing of price adjustments.
“African policymakers agreed that—over the medium-term—further improvements in the business climate, labor markets, governance and public sector service delivery would be essential to generate sustained growth, employment, and address income inequalities.
“Lastly, African Governors called on the Fund to continue to assist African economies needing balance of payments support with appropriate levels of financing, using the most appropriate instrument from the Fund’s expanded lending toolkit. In this regard, Governors called on the Fund to use the windfall profits from the sale of gold to provide adequate resources to subsidize loans from the Poverty Reduction and Growth Trust to low-income countries. They also emphasized the importance for the Fund to promote and disseminate research and analytical tools tailored to African countries’ circumstances and to adapt its advice and program design to help African economies meet their needs in the challenging global environment.”
In closing, the co-chairs noted that “the uncertainties surrounding the global economic outlook pose risks to African economies and we have a shared view on how policymakers should respond if these risks materialize”. Ms. Lagarde added: “On the IMF side, we stand ready to assist African countries design economic policies that deal with such shocks and provide technical assistance and additional and flexible financing as needed. The Fund is already discussing possible financing with a number of countries undergoing transition in North Africa.”
1 The African Consultative Group comprises the Fund Governors of a subset of 15 African countries belonging to the African Caucus and Fund management. It was formed in 2007 to enhance the IMF’s policy dialogue with the African Caucus. Usually, the Group meets at the time of the Spring Meetings and Fund Management meets with the full African Caucus at the time of the Annual Meetings.
