Tuesday, January 27, 2009

IMF warns of rough economic ride for African continent


The economies of countries in sub-Saharan Africa have shown surprising resilience in the face of the global economic meltdown, according to the International Monetary Fund (IMF).

However, it warned yesterday that there was no guarantee such resilience could last, and the region should "prepare for a rough ride".

The IMF said the risks to growth in sub-Saharan Africa were quite obvious.

"The food and fuel price shock has put pressure on inflation and external balances," it said. "And the deepening global financial turmoil has put a brake on global growth, giving rise to the potential for lower commodity prices for Africa's exports and reduced capital flows to Africa; as a result, growth in Africa could slow as well."

If the economic clouds on the continent's horizon developed into a storm, its policy makers had to be prepared to respond.

"One of the challenges Africa faces is increasing inflation," said the fund. "The IMF expects inflation in sub-Saharan Africa - excluding Zimbabwe - to rise to 12 percent in 2008, before falling back to 10 percent in 2009.

"The rise in inflation is caused mainly by the food and fuel price shock. In a number of countries demand pressures have also contributed to inflation, sometimes reflecting expansive fiscal policies. As a result of rising prices, particularly of food, poverty may well be on the rise in 2009.

"Higher import prices are also worsening the external balance of most countries in the region, in particular those who are net oil importers.

"And the world financial crisis, which has come on top of the food and fuel price shock, now risks further exacerbating external balances by reducing remittances, capital and even aid inflows."

In the absence of more aid, countries could not afford to import as much as they had before. This meant they needed to pass through the increase in food and fuel prices to the economy over time, to encourage adjustment.

A number of countries in the region had fallen behind the curve in fighting inflation.

"In many countries, monetary policies may therefore need to be tightened to preserve price stability."