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A recent World Bank research shows the global crisis is trapping up to 53 million more people in poverty in developing countries. Particularly in Africa, the report finds. The economic crisis is hitting the poor hard and the impacts are greatly felt from the market place to the Churches and within the farms but with the assurances of the IMF that it has a plan for Africa in the face of the turmoil.
Africa is feeling the impact of the global financial crisis, and it is already severe. We now expect growth in 2009 to reach about 3.3 percent, roughly half its average since 2000. At the same time, inflation is coming down only slowly as the food and fuel price crisis of 2008 continues to have lingering effects. The main driver of the economic contraction is the sharp global economic slowdown. The IMF’s latest estimates project global growth to come to a virtual standstill in 2009, and advanced economies are nearly all in a deep recession. While global growth is expected to recover in 2010, Dr. Sayeh of the IMF stressed that the global outlook remains highly uncertain – as do the prospects for Africa. While speaking during a Conference Call with African Journalists, she announced that there are now three main transmission channels of the global financial crisis to Africa: First, the drop in global demand for goods and services produced in Africa. Import demand in the EU, the US, and emerging Asia--which together account for ¾ of Africa’s exports – is falling sharply; Second, commodity prices have fallen sharply already and are expected to remain low in 2009. This affects oil exporters (oil price is down 50 percent on average in 2009), but also other commodity exporters. Copper prices, for example, are down by about 60 percent. Third, financial inflows are also declining. This has already happened to portfolio inflows. Looking forward, foreign direct investment, which had doubled in recent years, and remittances, which are an important source of foreign exchange for some African countries, are also at risk of declining. Asked what does this mean for Africa’s economies? She narrated that budgets will come under pressure as government revenues decline. The drop in export prices will also affect trade and current account balances: we expect current account deficits to widen by over 5 percent of GDP in 2009.
But the good news, she said, is that on average, African economies are better prepared for this shock than in the past. Some countries can use their relatively comfortable levels of foreign exchange reserves as a temporary buffer while they adjust to the new economic environment. Similarly, sound budgetary policies in recent years and comprehensive debt relief have provided many African countries with low levels of public debt. This, in turn, means that some countries have room for fiscal stimulus without jeopardizing economic stability. In other countries, this room is more limited because of financing constraints. In all countries, it will be important not to jeopardize the hard-won gains of the past decade, gains that have brought robust growth and sustained poverty reduction in a growing number of African countries. This means allowing exchange rate flexibility in countries with flexible exchange rate regimes. It also means tightening financial sector supervision. It will be important to identify vulnerabilities, and have plans in place to address them. Dr. Sayeh said that the international community also has an important role to play, in at least two ways. First, by maintaining the commitment to development assistance to Africa made at the Gleneagles Summit. This pledge remains crucial to help Africa make progress toward the Millennium Development Goals. And the current situation makes it even more important that aid is predictable, transparent, and aligned with the policy priorities of the recipients. Secondly, it will be important to guard against incipient protectionist pressures. An open global trading system is a vital link for Africa with the rest of the world. The IMF, she said, is assisting African governments in a variety of ways.
With direct financial support, technical assistance to strengthen public sector capacity, and where needed, with policy advice in economic management. She said that IMF is co-hosting a Conference on the subject matter with President Kikwete of Tanzania in Dar es Salaam next month. The conference which will bring together economic policy makers, the private sector, and civil society from all over Africa and beyond will aim at addressing three broad questions: (i) what have we learned from the success of the past decade? (ii) how does the global financial crisis affect Africa and what should be the response from African countries and the international community? and (iii) more specifically, how can the IMF strengthen its engagement with Africa and assist its African members in reaching their development objectives? However, How will Africa survive the global financial turmoil? it is a question that the African governments, the IMF, World Bank and other international partners and donors will have to answer in due time with the platforms already grounded. |
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