Front Matter

Front Matter

International Monetary Fund. African Dept.
Published Date:
April 2009
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    Regional Economic Outlook Sub-Saharan Africa

    April 2009

    © 2009 International Monetary Fund

    Cataloging-in-Publication Data

    Regional economic outlook : Sub-Saharan Africa. -- Washington, D.C. :

    International Monetary Fund, 2009. – (World economic and financial

    surveys, 0258-7440)

    p. ; cm.

    “APR 09.”

    Includes bibliographical references.

    ISBN 978-1-58906-838-4

    1. Economic forecasting – Africa, Sub-Saharan. 2. Economic indicators – Africa, Sub-Saharan. 3. Financial crises – Africa, Sub-Saharan. 4. Crisis management – Africa, Sub-Saharan. 5. Fiscal policy – Africa, Sub-Saharan. 6. Financial services industry – Africa, Sub-Saharan. 7. Banks and banking – Africa, Sub-Saharan. I. International Monetary Fund. II. Series: World economic and financial surveys.

    HC800 .R445 2009

    Please send orders to:

    International Monetary Fund, Publication Services

    700 19th St. N.W., Washington, D.C. 20431, U.S.A.

    Tel.: (202) 623-7430 Fax: (202) 623-7201





    This April 2009 issue of the Regional Economic Outlook: Sub-Saharan Africa (REO) was prepared by a team led by Norbert Funke and Paulo Drummond and under the direction of Benedicte Vibe Christensen, Bernard Laurens, Saul Lizondo, Andrew Berg, and Kal Wajid. This report reflects developments as of April 2009. The team included Victor Lledó, Inutu Lukonga, Yanliang Miao, Gustavo Ramirez, Subramanian Sriram, Jerome Vacher, and Irene Yackovlev. Specific contributions were made by Philip Bartholomew, Jihad Dagher, Nikolay Guerguiev, Plamen Iossifov, Joannes Mongardini, Sean Nolan, Rafael Portillo, Effie Psalida, Issouf Samake, Raju Singh, Yuri Sobolev, Wipada Soonthornsima, Jahanara Zaman, and Mary Zephirin with editorial assistance from Anne Grant and Martha Bonilla, and production assistance from Natasha Minges.



    Central Bank of West African States


    Bank for International Settlements


    Capital adequacy ratios


    Central African Economic and Monetary Community


    Common Market for Eastern and Southern Africa


    East African Community


    JPMorgan Emerging Markets Bond Index


    Foreign direct investment


    Gross domestic product


    Heavily indebted poor countries


    International investment position


    Millennium Development Goal


    Multilateral Debt Relief Initiative


    Purchasing power parity


    South African Customs Union


    Southern Africa Development Community


    Sub-Saharan Africa


    West African Economic and Monetary Union


    World Economic Outlook

    The following conventions are used in this publication:

    • In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.
    • An en-dash (–) between years or months (for example, 2005–06 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).
    • “Billion” means a thousand million; “trillion” means a thousand billion.
    • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    Main Messages

    Global Financial Crisis Hits Sub-Saharan Africa

    Over the past decade sub-Saharan Africa has made remarkable gains in promoting growth and achieving economic stability. Growth—which is essential for much-needed poverty reduction—averaged more than 6 percent over the past five years; inflation had fallen to single-digit levels before the fuel and food price shocks of 2008; and reserves were built up. These positive developments relied on strong economic policies; a favorable external environment, especially rising commodity prices; and debt relief and aid from the international community.

    These hard-won economic gains are now at risk. Like the rest of the world, Africa is feeling the impact of the global financial crisis. Demand for African exports has fallen; commodity prices have declined; and remittance flows may be weakening. Tighter global credit and investor risk aversion have led portfolio flows to reverse, deterred foreign direct investment (FDI), and made trade finance more costly. The economic slowdown is also likely to increase credit risk and nonperforming assets, weakening the balance sheets of financial institutions and corporations.

    The appropriate policy response depends on country-specific circumstances. The priority for all sub-Saharan African countries, however, must be to contain the adverse impact of the crisis on economic growth and poverty, while preserving the hard-won gains of recent years, including macroeconomic stability and debt sustainability. Temptations to respond to weakening balance of payments positions with protectionist measures or by reverting to administrative controls need to be avoided. Economic policy through these difficult times should therefore be guided by the following principles:

    • Use available fiscal space. The global financial crisis will reduce government revenues. If the increase in the fiscal deficit can be financed, countries that achieved macroeconomic stability without binding debt sustainability constraints have scope for letting automatic stabilizers work. A few countries also have scope for discretionary fiscal stimulus, including social measures to protect the poor. Commodity exporters that accumulated savings during the boom may be able to adjust gradually by drawing down reserves. For those with fewer reserves, additional donor support will be needed to ease the adjustment. Eventually, however, all countries need to adjust to the new external environment.
    • Where possible, ease monetary policy and let the exchange rate adjust to the external environment. The plunge in commodity prices should provide a disinflationary impulse, which might allow some countries to ease monetary policy. Where the terms of trade have deteriorated or capital flows are drying up, real exchange rates will have to depreciate. For countries with flexible exchange rates, currencies should be allowed to depreciate, whereas for countries with fixed exchange rates, fiscal policy is the main instrument, along with measures to enhance competitiveness. Countries with a de facto rather than a formal peg could consider introducing some degree of flexibility.
    • Closely monitor financial vulnerabilities and be prepared to act promptly. Determined risk-based bank supervision will be essential for identifying and addressing banking system vulnerabilities at an early stage.
    • Keep medium-term goals in sight. Fiscal measures in particular need to consider debt sustainability issues and support development strategies.

    To carry forward the reform momentum of the past decade in the current adverse environment, Africa will need additional aid resources, at least the doubling of aid promised by the G-8 Heads of State at the Gleneagles summit in 2005. Although donor countries are also under pressure, aid commitments should still be honored: without additional donor support, the necessary large expenditure cuts could set poverty reduction and infrastructure provision in Africa back by several years and might even endanger political stability in some countries. In addition, aid constitutes a small share of donor countries’ budgets. The IMF is doing its part to help Africa. It is revising its lending instruments to make them more flexible and working to double concessional lending to low-income countries. The Fund will also continue to provide policy advice and extensive technical assistance to strengthen economic policymaking in sub-Saharan African countries.

    Impact on Financial Systems

    Financial systems in sub-Saharan African countries have so far been resilient to the global financial crisis. Although the crisis has exerted significant pressures on money, currency, and capital markets, they have continued to function normally. The relative stability reflects several factors—among them the limited, though increasing, integration with global financial markets, minimal exposure to complex financial instruments, relatively high bank liquidity, limited reliance on foreign funding, and low leverage in financial institutions.

    However, pressures have intensified as sub-Saharan African countries are being hit by the global crisis. The spiraling effects of a depressed world economy and the increased risk aversion of investors pose growing risks for financial systems. Because of the spillover of the crisis to real economies, global demand and prices for commodities are depressed, capital flows are declining, and economic growth prospects have slowed throughout the region. If prolonged, this situation could further increase credit risk and nonperforming loans and reduce liquidity. In particular, with external resources drying up, domestic markets might be too thin to accommodate the demand for credit from both the government and the private sector.

    What can sub-Saharan African countries do to protect their financial systems and their reform achievements? Priorities may have to emphasize short-term preventive measures to minimize contagion. Crisis resolution tools will be needed to mitigate the impact of the global financial crisis. Useful measures would be intensified surveillance to facilitate early detection of risks (e.g., through stress-testing of banks); contingency planning to reduce potential runs on banks and protect depositors; improved arrangements for home and host country supervisory relations and cross-border crisis management; flexible provision of liquidity support to the banking system; and strengthened bank resolution frameworks to ensure the orderly exit of weak banks.

    Short-term priorities, however, should not detract governments from the need for longer-term reforms to build and diversify their financial systems. Reforms should aim to better regulate financial systems and address regulatory gaps, particularly weak cross-border supervision; tackle weaknesses in the legal and financial infrastructure; further promote capital markets; and deal with data deficiencies in risk-monitoring systems.

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