This paper reviews recent experience of African countries in the design and implementation of adjustment programs supported by use of Fund resources.1 The aggregate analysis covers primarily 1980 and 1981, while the case studies include results through the end of 1983. The paper is divided into seven parts. The first part outlines the economic background leading to the emergence or aggravation of financial imbalances in Africa before 1980. The second part reviews the role of the Fund in financing and adjustment. The third part examines the objectives of programs supported by use of Fund resources. Against this background, the fourth part analyzes the design of programs. The fifth part assesses the experience in implementing adjustment programs, with a view to determining the reasons for the difficulties that these countries encountered. The sixth part provides case studies of the recent adjustment programs of Somalia and Mali, which were supported by use of Fund resources. The conclusion summarizes the study’s main findings.
In view of mounting economic and financial imbalances, a number of African countries worked closely with the Fund to design and carry out appropriate adjustment programs during 1980–81.2 At the beginning of 1980 there were 12 stand-by arrangements. The total amount approved under these arrangements was equivalent to SDR 455.2 million. Several arrangements expired and new arrangements were approved during 1980. At the beginning of 1981 there were 11 stand-by and 3 extended arrangements for a total of SDR 1.8 billion. With the increase in extended arrangements and the approval of new stand-by arrangements in 1981, the numbers of stand-by and extended arrangements in effect at the end of 1981 were 13 and 6, respectively, with the total amount committed reaching a record SDR 4.3 billion. Purchases nearly doubled in 1980 and more than doubled in 1981, reaching a record SDR 1.7 billion (Tables 2 and 3).
The 2012 Article IV Consultation report for Senegal discusses the fourth review of the Policy Support Instrument (PSI) implementation and request for modification of an assessment criterion. Senegal’s growth has been sluggish in recent years, with implications for poverty reduction. The authorities’ policies since the last Article IV Consultation have been broadly in line with IMF recommendations. In the medium term, growth is expected to return gradually to about 5 percent a year. However, the economy remains exposed to substantial risks.
Although there is general agreement on the objectives, each program is designed differently. There is no such thing as a “typical” Fund-supported adjustment program, although many articles have been written attempting to describe such programs by pointing out the commonality of objectives and instruments. The objectives and instruments, however, are limited and are clearly common to most countries. A program involves setting specific quantitative objectives and selecting the proper mix of instruments as well as deciding the degree to which each instrument will be used. In this sense, because no two countries share the same economic conditions, no two Fund-supported programs are alike. Each program addresses the specific problems of the country concerned, takes into account the macroeconomic relationships imposed by the institutional framework, and sets the quantitative targets for the instruments selected.
Performance under programs is difficult to assess insofar as the assessment depends on the yardstick selected. Guitián (1981) discusses the problem in detail, focusing on three yardsticks: (1) the performance that would have been achieved without a program; (2) the performance in the previous year or series of previous years; and (3) the targets of the programs.
While the last section examined in aggregate the performance under programs in Africa during 1980–81, this section provides case studies of two African countries, Somalia and Mali,10 which had Fund-supported programs during 1980–83. Somalia had a succession of three stand-by arrangements during this period, starting in 1980. Mali, by contrast, had two stand-by arrangements, starting in 1982. These two case studies illustrate specifically the differing factors that led to the emergence of imbalances, the policies set out under each of the programs, and the progress made in implementing the programs.
Even though some African countries implemented adjustment programs effectively during 1980–81, generally adjustment efforts of African countries remained fairly limited. During this period, the economic conditions in Africa did not show signs of improvement. After picking up somewhat in 1980, economic activity slowed down in 1981 to about 3 percent and stagnated in 1982. Inflation continued to rise during 1980–81 to an annual average of about 22 percent, but tapered off to 17 percent in 1982. The terms of trade declined sharply, by about 10 percent during the three-year period of 1980–82, reflecting in part the recession in the industrialized countries. The aggregate external current account deficit climbed from about US$10 billion in 1979 to an annual average of US$13.1 billion in 1980–82. These deficits continued to be financed primarily by foreign borrowing, with the result that total outstanding external debt rose from US$45 billion in 1979 to US$62 billion in 1982. As a ratio to GDP this represented an increase from 38 percent to 50 percent in three years. Rising international interest rates contributed to an even steeper rise in the debt service ratio, which increased from about 17 percent in 1979 to about 24 percent in 1982.