3rd Wave of global crisis threatens African growth

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Economic growth in sub-Saharan Africa is set to halve from the average of the past decade to just over 3 per cent in 2009 as the continent is hit by the “third wave” of the global economic crisis, the International Monetary Fund has warned.

Antoinette Sayeh, director of the IMF’s Africa department, said the crisis that began in developed economies and then hit emerging markets was now hurting the world’s poorest continent via low global commodity prices, tighter credit markets and depressed external demand.

“It’s a big shock,” she told the Financial Times, adding that the IMF’s growth forecast of 3.25 per cent could be revised down further in coming months if the world economy appeared set to contract.

Even at its current level the forecast was below the population growth rate of many places, she pointed out. “So you won’t see an increase in real per capita growth in some countries. You may see a decline. That’s a major change from the recent past.”

Africa had been enjoying its best run of economic growth since the 1970s, one driven by surging commodity prices, inward investment flows and better management of public finances, banks and inflation.

The challenge for African policy makers gathering on Tuesday at an IMF conference in Dar es Salaam, the Tanzanian commercial capital, was to “walk a tightrope” by protecting better macroeconomic fundamentals without strangling domestic demand, Ms Sayeh said.

Plunging public revenues are threatening the ability of many African governments to keep their expenditure at budgeted levels. The World Bank has said that developing countries face a financing shortfall of $270bn-700bn this year as private sector creditors shun emerging markets.

“We want African countries to take responsibility for adjusting their fiscal and monetary policies to the shock,” she said, but also called on western donors to scale up not scale back their aid to the continent.

“We know that times are hard in advanced countries as well and that often when times are hard the easiest place to cut is where there is a weaker constituency for aid … but that’s the wrong thing to do.”

She said, however, that there were limits to what a fiscal stimulus could do in Africa. “The source of the shock in developed countries is an internal domestic one coming from the financial sector,” she said. “The shock to most African countries is an external shock … from the demand for exports or from the price of exports falling. In that context sustaining domestic demand is not necessarily getting at its source.”

Africa’s fortunes, she said, would depend more on whether global growth could be restarted by stimulus packages and financial sector reform in more developed economies. “World growth has to be restored for Africa to be able to pull itself out of the crisis,” she said.

Financial Times

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