IMF on Africa: The good news and the bad
2009-10-27, Issue 455
'"Good news" for Africa – bad news for the poor'. That is the message of the IMF’s (International Monetary Fund) latest regional economic outlook for sub-Saharan Africa. But you would have to look for the small print to find the second half of the message.
As the global economy seems to be moving back into expansion, the IMF finds grounds for cautious optimism that sub-Saharan Africa (SSA) could be set for a rebound, and a quicker one than the region experienced in previous economic downturns.
In 2009 the SSA economy grew by just 1 per cent after five consecutive years of growth averaging 6.5 per cent. As well as exports and commodities revenues, the global recession also disrupted capital flows and cut remittances. The downturn hit particularly hard at oil exporters and middle-income countries.
However, growth in the region is expected to bounce back to 4 per cent in 2010 and 5 per cent in 2011, the report predicts. And more prudent financial management during the good years has left governments with a greater ability to use counter-cyclical economic tools in the downturn. So for the region as a whole, where governments were running budget surpluses of just over 1.25 per cent of GDP (gross domestic product) in 2008, they have been able to use their increased room for manoeuvre to let budget deficits rise to an expected 4.75 per cent deficit in 2009, thus maintaining public spending to some extent and so offsetting the recession’s worst effects.
The report also claims credit for the IMF’s own stepped-up financial support. New commitments to the region have already reached about US$3 billion this year, as against US$1.1 billion in 2008 and only US$0.1 billion in 2007.
But the small print makes clear that the good-news scenario rests on a number of assumptions, any of which could produce bad-news outcomes if the figures come out the other way. 'The region’s poor will be particularly vulnerable if some of the major risks to the recovery are realized', the report notes.
Global figures imply that world export demand will ‘remain well below previous trends and thus that surplus capacity in the global economy could again squeeze out sub-Saharan African producers and delay investment plans', the authors concede.
Low-income countries, which lack the large external reserves enjoyed by oil producers, will 'remain heavily dependent on external assistance and private inflows, including remittances, that are themselves vulnerable to global uncertainties’. Domestic demand could also be held back by ‘the limited availability of social safety nets to mitigate the long-term impact of the downturn on the poor’, and credit could be slow to return to the private sector.
Most of the expected rebound is slated to come from oil-exporting countries as a global recovery brings oil prices back up. But by the same token, oil-importing countries will take a further knock. For them, the report predicts, ‘GDP growth rates are unlikely to be high enough to substantially reverse the loss in tax payments resulting from the downturn and the higher spending that many are planning to offset its impact… Oil importers as a group are expected to continue to sustain fiscal deficits [excluding grants] of 5–7 percent of GDP … for several years.'
Lower-income countries have so far been less affected by the recession and those with a broad mix of commodities should be best-placed to return to higher growth rates. But many remain vulnerable, especially where they have a high exposure to South African financial links and investment.
South Africa’s recovery is expected to be slow, with GDP growing by only 1.75 per cent in 2010 and 3.75 per cent in 2011. The report blames higher urban unemployment, low consumer confidence and tight business credit and points to South Africa’s exposure to possible swings in capital flows.
Exposure to ‘problems that flare up in international financial markets’ is flagged up as a more general problem by the report’s authors. ‘Many banks (a disproportionate number in some countries) have foreign parents, and trade finance, cross-border banking transactions and direct and portfolio capital flows are fragile. These vulnerabilities could compound problems arising from domestic economic developments…’
At the report’s London launch it was left to Gareth Thomas, a reader in economic history at the London School of Economics (LSE), to point to the irony of these comments, and of the report’s finding that the poorest countries had been least affected by the global slump due to their lack of exposure to global financial markets.
It was the IMF, he pointed out, that had been one of the leading promoters of global financial integration throughout the 1990s. And the fund’s current support for counter-cyclical government spending and a limited role for deficit financing was a welcome contrast to its attitude of 20 or 30 years ago.
Nor is this the only area where the report strikes a different tone to that with which the IMF has been associated in the past. It quotes research confirming the importance of investment – especially by the public sector – in human resources and in infrastructure. Halving the infrastructure gap between the region and comparators in the rest of the world, according to one estimate, would raise annual growth by 2 percentage points.
Thomas quoted ‘an informed World Bank source’ as predicting that 700,000 more African babies will die before their first birthday as a result of the recession. For them, the new-found and belated – if limited – realism of the IMF report could be said in an unusual sense to be a ‘death-bed conversion’.
BROUGHT TO YOU BY PAMBAZUKA NEWS
* The full text of the October 2009 'Regional economic outlook: sub-Saharan Africa' can be found on the IMF’s website at www.imf.org/external/pubs/ft/reo/2009/AFR/eng/sreo1009.htm.
* Stephen Marks is research associate and project coordinator with Pambazuka News's Emerging Powers in Africa project.
* Please send comments to [email protected] or comment online at Pambazuka News.
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