Policy slippage risk in Africa has abated, says IMF
Potential threats of policy reversals after years of economic reform have abated across Africa, the IMF director for the continent, Antoinette Sayeh, believes.
“We have seen a very constructive response to the crisis on the part of African countries, pursuing very responsible fiscal policies,” she told Emerging Markets in an interview. “There are reasons to be encouraged.
“Policy reversal is always a risk when social pressures are overwhelming, [but] we have had fairly good responses to the crisis.”
In South Africa, and in some of the poorest countries in the region, social tensions have arisen from growing unemployment, which have put more pressure on governments.
“Budgets have often not been able to provide the kind of social services that one would ideally want to see. This can always have social consequences that can be difficult for policymakers and can exert pressure on them to change course,” she said.
On the other hand, “we have not seen a resort to protectionist policies, in broad terms, and we have not seen resort to overly artificial exchange rates”.
Africa is now looking forward to a modest recovery next year after an expected drop in real per capita GDP income this year.
“This is the first time that a number of countries in sub-Saharan Africa have been able to use the fiscal space that was created over several years to employ counter cyclical policy in order to try to mitigate the impact of the global crisis in their economies,” Sayeh said.
“It allowed countries despite falling revenues to maintain a certain level of expenditure. In a few countries, they implemented discretionary further increase in expenditure,” added Sayeh, a former finance minister in Liberia. This has been “a welcome development, made possible by the very strong efforts of the past decade or more”.
The new IMF strategy for Africa is being implemented in countries including oil-rich Angola and post-conflict Cote d’Ivoire.
A proposed $1.3 billion standby agreement for Angola is due to be submitted to the Fund’s board next month. “This is a very big programme,” Sayeh said. It includes a “comprehensive reform effort focused very heavily on fiscal policy challenges” and the management of oil wealth in a more transparent way that will integrate those resources more closely into the budget.
Cote d’Ivoire, which has emerged from a period of civil war and political instability, is now seeking to obtain debt relief on $3 billion worth of loans from the Fund, after the Paris Club of donors agreed to write off $845 million of debts last May.
“The Ivorian authorities would like to see that completed as soon as possible. They have talked about 2010 as their objective,” Sayeh said. She believes this can be achieved during 2010, “provided Cote d’Ivoire continues to make good progress in its poverty reduction strategy [as part of the ongoing Poverty Reduction Growth Facility].”