IMF lending to Africa set to double: official

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Lending by the International Monetary Fund to Africa is set to double this year as the region is gripped by the global economic crisis and more countries need aid, senior IMF officials said overnight.

The IMF has seen a sharp rise in demand for its loans from African countries this year as their balance of payments are hit by a sharp drop in revenue from exports, volatile commodity prices and falling foreign investment, Reuters reports.

In the first five months of this year the IMF has committed about $1.6 billion to Africa, compared to $1.1 billion for 2008 and $200 million in 2007.

“For the remainder of 2009 it is likely that the stock of our lending in Africa will double relative to where it stood at the end of 2008,” said Roger Nord, mission chief to Tanzania and a senior advisor in the IMF’s Africa Department.

“This is clearly a reflection of what is happening in the world economy, but it is also a reflection of the IMF’s conscious policy to scale up our assistance to Africa,” he added.

The increase is not only new lending for countries that graduated from IMF assistance during the decade of high economic growth but also increases in existing loan programs, said Nord.

Last week, the IMF approved a combined $545 million in emergency funding for Kenya and Tanzania, an example of countries that have followed sound economic policies but have been unable to escape the effects of the crisis.

The IMF financing is designed to cushion falling currency reserves, while at the same time allowing countries to continue spending on vital infrastructure projects.

“We hope with this support and strong policies it will be able to weather this storm without any further damage,” said Nord.

So far this year, the IMF approved financing to Ethiopia, Sao Tome and Principe, Ivory Coast, and Zambia. Others such as Ghana, Mozambique and the Democratic Republic of Congo have indicated they also plan to request IMF support.

The IMF has sought to be more flexible in its bid to help low-income countries, doubling limits on its loans and streamlining conditions, including allowing for wider fiscal deficits in countries that can afford it.

The IMF is also currently designing new lending instruments for its poorest borrowers, including a new precautionary program in which governments would not need to tap the immediately tap the money.

“Where there is room the IMF has supported allowing fiscal deficits to widen,” Nord told a conference call with reporters. “By our account that will be the case in close to 80 percent of our programs in Africa. But where there is no room this is not going to be possible.”

Michael Atingi Ego, an adviser in the IMF Africa Department and mission chief to Kenya, said foreign direct investment in many parts of Africa was either being put on hold or is slowing, especially related to the collapse in commodity prices.

Both Nord and Atingi Ego said there was no evidence that donor countries were reneging on their aid commitments to Africa. Still, there was a need for additional donor aid to fill the financing shortfalls of most African governments beyond 2009, they said.

“Most African countries are facing larger financing gaps,” Nord said. “There are some donors who can respond in the short-term by scaling up, but most do not have that flexibility nor presumably the budgetary maneuver at home.”

The IMF and other global financial lenders had a role in helping to plug the financing shortfall through emergency lending, Nord added.

Rich industrial countries agreed in 2005 to double aid to Africa by 2010, but there are fears among development groups that the donors could back away from their promises in the wake of the global recession.