The International Monetary Fund could further revise up its growth forecast for Africa next year to reflect a pick-up in demand in China and some industrialized countries where there are signs of recovery.
In an interview with Reuters, Antoinette Sayeh, Director for the IMF’s African Department, said the end of the global recession was still a way off and African economies are feeling the dramatic decline in demand, investment and commodity prices.
“On the one hand the external environment appears to be getting better and there are expectations that growth in China may be more robust, so we’re looking at our projections in light of what appears to be some improvement,” Sayeh said, adding, “But it is a long way from the end of the recession.”
Sayeh said the IMF had just revised up its 2010 growth forecast for Africa to 4 %, from an April forecast of 3.8 %, and could adjust it higher by October, when it will update its forecasts for the world economy.
“It takes significant amount of time to return to growth potential after these crises, which worries us also,” Sayeh said.
“It may take Africa some time to get back to the 6 % growth we were seeing before,” she added.
Demand for IMF funding from African countries had increased sharply, she said, and the rash of new loans showed how hard the region is being hit but also reflected more flexible lending practices by the IMF.
Currently, there are 28 African countries with active IMF programs, compared to just six in 2006. In the first six months of this year, lending increased to $3 billion (R23 billion) more than the last three years combined.
The IMF said lending to the region could hit up to $8 billion (R63 billion) over the next two years.
In South Africa the region’s largest economy, she said there was some evidence that private capital inflows are beginning to improve.
“This is all healthy, but it still doesn’t make up for the outflows previously, and even countries like South Africa continue to be very much impacted by reduced demand for its exports,” she added.
Sayeh said the IMF was concerned that a prolonged downturn in Africa’s growth could force countries to increase borrowing and push up their debt levels, just as many have benefited from debt cancellation.
But she said there were no signs yet that countries were building up their debt to unsustainable levels.
New lending practices
The IMF said it would mobilize up to $17 billion (R134 billion) in new resources for lending to low-income countries, most of them in Africa, seen most at risk from the global crisis.
In addition to an increase in funding, the IMF also temporarily suspended interest rate payments on outstanding credit for 60 poor countries over the next two and a half years until the start of 2011.
It also unveiled three new lending facilities for poor countries, including a short-term precautionary credit instruments for countries that may not want to immediately tap the money.
Just a few months ago, the IMF announced a similar precautionary lending program for emerging market countries, but has not had one for its poorest borrowers until now.
The IMF will also offer emergency financing for countries hit by external shocks outside their control, such as the record increase in global food prices.
But Sayeh said the IMF’s Poverty Reduction and Growth Facility (PRGF) for countries facing protracted balance of payments problems will likely remain the “workhorse” of its engagement in Africa.
She added the IMF expects most African countries will use an allocation of $18 billion (R142 billion) in IMF special drawing rights, expected in August, to rebuild their reserves instead of exchanging it for hard currency.
The allocation is part of a $250 billion (R1974 billion) boost to global liquidity agreed by the Group of 20 member countries in April, of which $18 billion will go to poor countries.
SDRs were created by the IMF in the 1969 as an international reserve asset, and can be exchanged between countries and converted into hard currency such as the dollar, yen, pound or euro.
Pic: Farmer in Africa