Wednesday, January 28, 2009

Africa policymakers must prepare for tough times

Policymakers in sub-Saharan Africa should prepare for tough times ahead, with no guarantee that the resilience shown so far to global economic shocks will continue, the International Monetary Fund said on Monday.

Major world economies are in recession, stung by a global credit squeeze, and growth is now slowing in developing countries that had at first appeared resilient to the downturn.

The IMF said in a statement higher food and fuel costs had put pressure on inflation and external balances in sub-Saharan Africa, and the deepening financial turmoil that has hit world growth could knock growth through lower capital flows and export revenue.

"Economic growth in the countries of sub-Saharan Africa has been surprisingly resilient in the face of the latest shocks hitting the global economy, notably the food and fuel price increases and financial market turbulence," the IMF said in a statement.

"However, the International Monetary Fund cautions that there is no guarantee that this resilience can be maintained and that this will require a determined response from the economic policymakers, governments as well as central banks."

IMF Africa Director Antoinette Monsio Sayeh said policymakers should try maintain economic stability while protecting the poor, and in the absence of more aid, governments could not afford to import as much as they did before.

With food accounting for a major part of household spending, the loss of purchasing power of the poor was a serious concern.

She warned against policymakers cutting taxes and tariffs, and increasing subsidies, on food and fuel as the measures were too costly to run in the longer term.

Tighter fiscal policy could also help to reduce the threat from inflation.

"A tightening of fiscal policy could usefully support this effort (preserving price stability), particularly where monetary policy choices are limited by the exchange rate regime and where the fiscal stance has contributed to inflation," Sayeh said.

"The recent easing of global commodity prices should help reduce, but does not eliminate, the challenge posed by higher inflation and current account deficits."