Supporting an Upswing in Africa Through Good Economic Policies


By Antoinette Sayeh

Ensuring that sub-Saharan Africa emerges strongly from global recession will require both a sustained recovery in the global economy and sound domestic policies. The good news is that domestic policies are already supporting economic activity.

Many countries entered the crisis in much better shape than in the past. The region’s fiscal position was on average in balance in 2008, compared with big deficits in past cycles. Debt levels were also much lower than in the early 1990s, supported of course by recent debt relief initiatives. Inflation had been brought under control across most of the region. And, reflecting sounder and more open policies, countries had accumulated much larger buffers of foreign reserves—the median ratio of reserves to GDP was 14 percent last year, compared to about 5 percent in the early 1970s.

Nigerian market: many African economies are in better shape than during previous crises (photo: Reuters)

Nigerian market: many African economies are in better shape than during previous crises (photo: Reuters)

This favorable starting point gave many countries in the region a fair amount of breathing space. They were able to respond to the crisis by allowing fiscal deficits to rise and interest rates to fall, reaping the rewards of previous good policies.  Countries with flexible exchange rates also let them adjust to the changing external environment. Such policy responses helped economies absorb some of the impact of the external shocks. Not all countries were able to take this route, however. Faced with large macroeconomic imbalances that pre-dated the global slowdown, a few countries had to tighten their fiscal or monetary policy stance.

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Africa and the Global Economic Crisis: Weathering the Storm


By Antoinette Sayeh

Last week, my colleague Hugh Bredenkamp talked about how the IMF is helping the low-income countries overcome the global  economic crisis. This week, I want to follow this theme, but hone in more on sub-Saharan Africa. I know this region reasonably well, both from current and past vantage points. In my present role, I am the director of the IMF’s African department. Previously, I was minister of finance in Liberia and, before that, I spent a significant part of my long World Bank career working on African countries. Grappling with the kinds of economic challenges that affect the lives of millions of Africans is a passion for me.

In this first post, I want to talk about growth prospects for Africa. Let’s take a step backwards. Before the global recession, sub-Saharan Africa was generally booming. Output grew by about 6½ percent a year between 2002 and 2007—the highest rate in more than 30 years. This acceleration was broader than ever before, going beyond the typical short-lived commodity driven booms and touching many more countries. Hopes were high that the region was slowly but surely turning the corner.

Workers making footwear in Nigeria at a factory funded by Hong Kong investment. (photo: Qiu Jun/Xinhua)

Workers making footwear in Nigeria at a factory funded by Hong Kong investment. (photo: Qiu Jun/Xinhua)

Then, in a great reversal of fortune, the global economy went into a tail-spin. Initially, we hoped that the fallout in Africa would be limited. And, indeed, when the global financial tsunami made landfall, it first hit the relatively small number of countries with well-developed financial linkages to international capital markets. South Africa in particular faced difficult challenges as portfolio outflows spiked. Together with Ghana, Uganda and several other frontier markets, its currency plunged, confidence dipped, and foreign direct investment slowed.

But the impact didn’t stop there.  Falling export demand and commodity prices battered economic activity in many more countries, including oil exporters in western and central Africa, causing fiscal and external balances to deteriorate significantly. Remittances from the diaspora shrank and credit dried up. The result, in many countries, was stalled growth.

 

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