IMF lauds Africa’s resilience in face of global recession


Africa has been awarded “top marks” for its performance in recent years by Abe Selassie, the head of regional studies at the African department of the International Monetary Fund (IMF). The continent’s performance improves the region’s growth potential and its attractiveness to investors.

The IMF’s regional outlook, published last week, showed that sub-Saharan Africa’s sound fiscal policies implemented ahead of the global crisis had provided a buffer when recession hit. Selassie said two-thirds of the countries had been in a position to implement countercyclical policies – increased spending – during the recession, Business Report added. Most of the region fared better than advanced economies last year and countries were also far more resilient than they had been in the 1992 recession when they had not had the resources to increase spending.

The South African Press Association added that the IMF added the South African government performed “really well” during the recent global financial crisis. “South Africa is a classic case of a country building buffers in the good times and using those buffers when the crisis hit,” Abebe Selassie told a briefing in Sandton on his organisation’s outlook for sub-Saharan Africa for 2010.
“Previous global economic slowdowns had a much more damaging impact, but this time the global downturn was much sharper but the dislocation was far less.” Selassie said that as the global financial crisis started to unfold, economic policies were directed quickly and effectively towards ameliorating the impact of the external shocks. “Most governments that anticipated the slowdown made plans to accelerate public spending growth and on the monetary policy side, policy interest rates were also reduced.” Selassie predicted that South Africa’s economy would grow by 2.6 percent for 2010.
“But I will be going back to Washington and revising it. It’ll probably be a quarter of a percentage point higher. So growth will be expected to come in around three percent for South Africa in 2010,” he said.

Sharmini Coorey, the deputy director of the IMF African department, said the continent’s international reserves had been at record levels in 2008, the business daily said. Debt levels had fallen from 100% of gross domestic product (GDP) in 2001 to 40% in 2008. This was partly owing to debt relief, which had lifted three-quarters of the region out of debt distress.

She said the prospects for the region were good for several reasons, including the fact that there has been a strong recovery in some parts of the world, including the US and China, which is boosting demand for Africa’s exports, especially commodities, Business Report added.

Oil-exporting countries had been hardest hit when falling demand sent the oil price from $147 a barrel in mid-2008 to $35 at the end of the year. Prices subsequently climbed sharply and oil exporters’ revenues are rising again. Oil has traded at between $70 and $85 in recent months. Also a positive factor is that inflation is low in the region and that there is no “liquidity overhang”. This is in contrast to most advanced economies where rescue measures included pumping vast quantities of money into the system and reducing interest rates to abnormally low levels. When these policies are reversed they could derail the recovery.

Coorey said that another supportive factor was that private investment flows had held up as investors saw Africa as attractive relative to other parts of the world. But Selassie said a problem in some African countries had been an inability to forecast revenue streams accurately. This made planning difficult in those economies. Broader dangers were identified for the region – including for South Africa where rises in social spending during the recession are likely to be permanent.

Nicola Viegi, a professor of monetary economics at the University of Pretoria, called for realism about the future. He said there was a need for “healthy pessimism” to avoid a situation like the one in Greece, where “excessive optimism” had led to poor decisions.

Viegi pointed out that sub-Saharan Africa’s earlier sound fiscal policies would have to be continued. And he warned against premature plans to create monetary unions in Africa. He pointed to the problems in Greece and Portugal, which saw membership of the euro zone as a solution to their problems but discovered it limited their ability to respond to developments in their own economies.