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Sub-Saharan Africa: Challenges for 2010
Remarks by Ms. Antoinette Sayeh
Director, African Department of the International Monetary Fund
The Brookings Institution–November 19, 2009
Good afternoon. Thank you for the opportunity to speak to you
today about the impact of the global crisis on Africa. The IMF
is extremely concerned that the worst financial crisis since
World War II threatens to push millions of people back below the
poverty line. Estimates by the World Bank indicate that 8-10
million more people could be pushed into poverty if the world
does not respond quickly. That is unacceptable.
The Fund has been one of the leading voices in the world in
warning about the impact of the crisis on the developing world
and in calling for increased resources—especially to protect
vulnerable groups and to ensure continued increases in spending
on priority sectors, such as health and education.
Today I will focus my remarks on the impact of the crisis on
sub-Saharan Africa, and the challenge of regaining the momentum
of the past decade as the recovery gets underway.
Impact of the crisis on Africa
First, let me turn to the impact of the crisis on Africa.
Projections from the latest Regional Economic Outlook for
sub-Saharan Africa–which we launched last month in Istanbul–
show countries in the region are being hit hard by the crisis:
• Between 2002 and 2007 output grew annually by some 6½
percent–the highest rate in more than 30 years. Moderate or low
levels of inflation, and macroeconomic stability accompanied the
growth takeoff in most countries. What was striking about this
upswing compared to the previous ones was that it was
broad-based, and not concentrated in just a few countries.
• But then a large number of African countries were hit by two
global economic shocks, not in any way of their own making:
i) First, the spikes in fuel and food prices in late 2007 and
early 2008;
ii) Then, later in 2008, was the onset of the Great Recession.
• African countries were heavily affected. As a result, output
is projected to expand by just 1 percent in 2009. For the first
time in a decade, we expect to see average per capita income
decline in SSA in 2009.
• The more exposed they were to the global economy, the more
severe the impact was. South Africa, Ghana, Uganda, and several
other frontier markets were especially hard hit at the onset of
the crisis. Export demand and commodity prices battered economic
activity in many more countries, including oil exporters in
western and central Africa. The result, in many countries, was
stalled growth.
• The good news is that many countries, including some
low-income countries, had built policy space that allowed for a
relaxation of fiscal and monetary policies and, in some cases,
explicit stimulus.
So how are African countries responding to the crisis?
The short answer is likely better than in the past. In previous
downturns, countries had very limited room for maneuver in
responding to global economic slowdowns. Budget deficits were
large and monetary policies too loose, leaving countries very
vulnerable going into past crises. The high budget deficits and
high debt levels meant that when the economy slowed down, there
was no room to use fiscal policy to cushion the fall in economic
activity. Instead countries were forced to resort to restrictive
polices, such as expenditure rationing, import quotas, foreign
exchange controls, and intervention in their domestic economies.
This was exactly the wrong response.
There is reason to think that this time may be different. Most
economies were in much better shape at the outset of the
downturn:
• For starters, budgets for the region as a whole were broadly
balanced in 2008, and some countries even posted moderate
surpluses.
• Debt levels were also much lower than in the early 1990s,
thanks in part to recent debt relief initiatives.
• Inflation had been brought under control across most of the
region.
• As a result, countries had accumulated much larger buffers of
savings, particularly, foreign reserves.
This favorable starting point gave many countries in the region
a cushion, which many are now trying to use:
• We think that budget deficits may increase this year in three
out of four countries, as governments seek to preserve public
spending despite a large drop off in revenues. Some countries in
Africa—such as Botswana, Mauritius, and Tanzania—have signalled
their intention to go further and increase discretionary
spending in an attempt to take more aggressive countercyclical
action.
• Inflation risks have remained subdued, allowing many countries
to ease monetary policy.
This hard-earned flexibility to ease policies should help to
dampen the adverse impact of the crisis on poverty and social
indicators. But the key to success will be how this policy space
is being used on the ground. Is it being used, for example, to
protect social spending or sustain criticial infrastructure
projects? Its too early to say at this stage [but its an issue
on which we plan to focus in the spring edition of our Regional
Economic Outlook for sub-Saharan Africa].
And we should not forget, of course, that not all countries were
in a position to ease policies during the crisis. For some
countries, where economic fundamentals were weaker (such as
Ghana, Seychelles, and Ethiopia), there has simply been no room
to use macroeconomic policies to support short-term growth.
These countries will be heavily reliant on higher aid flows to
mitigate the effect of the slowdown on vulnerable groups.
So where does Africa go from here?
What does the more positive news on the world economy of the
last few months mean for Africa? It is too early to say whether
the worst is behind us. Evidence is patchy at best. In most
countries, we do not have good high-frequency indicators that
might pinpoint the bottom of the cycle. But the indirect
evidence, such as monthly data on imports, exports, and tax
revenues, is consistent with economic activity in most countries
having bottomed out in the first half of this year. The question
now is whether the region will be able to recover relatively
quickly and preserve the hard-won gains of the last decade.
We are cautiously optimistic about the recovery. In the light of
this positive policy response in sub-Saharan Africa and an
improving world outlook, our growth forecast for Africa in 2010
is just over 4 percent.
However, there are significant downside risks if the global
recovery does not materialize or policies take a turn for the
worse. Thus, continued vigilance is needed by governments and
their development partners.
And a return to the unusually supportive pre-crisis global
environment cannot be taken for granted—the latest IMF
projections suggest that the global economy is beginning to grow
again, but the recovery is uneven and remains dependent on
policy support.
Thus new engines to drive strong growth will be needed in the
post-crisis period. Measures to improve the business
environment, develop well-regulated capital markets, increase
labor productivity, and enhance efficiency in the public sector
will be crucial.
Let’s not forget the stakes either. Even if economies do
improve, many in the region will remain vulnerable and in need
of continued support. Urban unemployment and rural poverty have
already risen, with very limited social safety nets in place.
The improvements in public services that will be essential if
countries are to move toward the Millennium Development Goals
may fall further behind as national and local budgets continue
to be stretched. Many low-income countries, lacking the buffers
provided by the strong external reserves of many oil producers,
will remain heavily dependent on uncertain external assistance
and private inflows, including remittances.
Let me now turn to how the IMF been responding to the crisis in
Africa and in other low-income countries.
First, we have been increasing our resources available to
Africa:
• We have sharply increased concessional financing to low-income
countries over the past year. As of September 2009, new
commitments to Sub-Saharan Africa reached $3 billion, compared
with $1.1 billion for the whole of 2008 and $0.2 billion in
2007. [incl. $320 million for Tanzania, $201 million for Kenya
under ESF, and $600 million for Ghana).]
• We are planning to do more. We are committed to: (i)
increasing our concessional lending, (ii) making our financing
cheaper, (iii) taking a more flexible approach to debt, and (iv)
providing financial support through a special allocation of
Special Drawing Rights worth nearly US$12 billion.
Second, we are also changing the way we lend:
• Recognizing that different countries have different needs, we
have introduced a variety of different lending windows to make
lending more flexible and better tailored to the needs of the
country.
• We will insure that our programs do not prevent
counter-cyclical policies. Fiscal targets have been loosened in
close to 80 percent of African countries (18 of 23) with active
Fund programs. On average, fiscal deficits are widening by 2
percent of GDP.
Case for continuing support from the international community
Many low-income countries will remain heavily dependent on
uncertain external assistance and private inflows, including
remittances. In these circumstances, support from the
international financial institutions will remain crucial.
We are doing our best to step up to this challenge. We think
that the IMF can provide about one-third of the additional
external financial need of low-income countries over the next
two years [which is estimated at $25 billion per year in
2009-10]. Other international institutions are contributing too.
But donors also need to play their part. A further scaling up of
aid, at least in line with Gleneagles commitments is needed
urgently.
Let me conclude by making three summary points:
• The IMF has recognized from the outset that this crisis would
have a serious impact on low-income countries and put at risk
the progress that has been made towards the Millennium
Development goals, and in particular on poverty reduction.
Momentum was building just as the two crisis hit the world.
• Our policy advice has been clear – that the war against
poverty and the fight for the MDGs must continue in the face of
the global recession. This required short-term relaxation of
budgetary and monetary targets in many low-income countries. It
was time to use the policy space built for a rainy day.
• But more financial assistance was also needed quickly. The IMF
was there when needed and will continue to assist. We have
increased the amounts we lend and changed the way we lend. But
we cannot do this alone – the international community must pitch
in to ensure adequate financing is available.
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