Facing high food and fuel prices, some African countries are in danger of seeing the progress achieved in recent years slip away, Antoinette Sayeh tells the IMF Survey. But if African governments pursue appropriate policies, they can limit the impact of the price shocks on the poor and, at the same time, tackle their long-run structural problems, says Sayeh, who recently assumed the post of Director of the IMF’s African Department after serving as Liberia’s Finance Minister. The IMF can help by providing policy advice, technical assistance, and concessional financing to the continent, Sayeh adds.
IMF Survey: For the past five years, Africa’s economies have been making good progress. What is the Fund’s view of the immediate economic outlook for Africa?
Sayeh: Africa is coming out of a very strong period of performance. From 1995 to 2007, we saw growth at an average of 5 percent in Africa underpinned by good policies in most countries. Africa now has to preserve that achievement as the basis for making progress toward the Millennium Development Goals.
Overall growth in sub-Saharan Africa is expected to dip to 6 percent in 2008 before rebounding to 6½ percent in 2009, but with a somewhat larger difference between oil exporters and oil importers. On the inflation front, of course, we have seen an acceleration in prices this year. We think that we will get into double-digit inflation during the course of 2008, but if countries pursue appropriate policies, we expect that rate to decelerate below 10 percent in 2009.
IMF Survey: Rising food and fuel prices could potentially undo the progress that Africa has made in recent years. How is the IMF responding?
Sayeh: All countries now face a more difficult external environment. Some African countries are in danger of losing the progress and the momentum that they’ve made these past years. The poor are particularly affected, of course, by increases in the price of food, with food constituting some 50 percent of the budget of most poor people in Africa. So it’s a major concern to us that governments are able to preserve the gains that they’ve made and are not tempted, as is often the case, to resort to populist policies to respond. The Fund has been very much at the forefront in advising our member countries about the appropriate policies to adopt to help in the short term to limit the impact on the poor, and in a way that preserves their ability to tackle the long-run structural problems that most African countries still have to address. We have provided financing, we have also provided advice, and we’ll continue to provide technical assistance as well to help African countries cope with a very difficult environment.
IMF Survey: Many countries in Africa see the lack of adequate infrastructure as a key impediment. What advice does the Fund offer to countries wanting to explore debt financing and support from emerging creditor countries, such as China?
Sayeh: We agree with countries that it is important to find ways of financing infrastructure. It’s a serious and very important constraint to accelerating growth in many African countries. We welcome new partners and new aid providers such as China. We want to work with African countries and China, and other new providers of aid, to make sure that the financing made available to African countries is, for the most part, concessional and helps all of us to protect the gains we’ve made under the HIPC [Heavily Indebted Poor Countries] process in dealing with the unsustainable debt that most African countries faced. We want to look, on a case-by-case basis, at how particular infrastructure projects support growth and fit into the overall macroeconomic framework, and then ensure that financing for those projects is sustainable.
IMF Survey: As a former finance minister for a country emerging from civil strife, how will your experience shape your view of the IMF’s priorities when it comes to dealing with fragile states?
Sayeh: I think some of the most critical characteristics of fragile states are the fragility of the peace in those countries, the absence of capacity, and the need for quick results. The Fund can do a lot to help with all of those challenges. The lack of capacity can be addressed with technical assistance that we can provide, including advice to help governments craft a medium-term reform strategy to deal with some of the challenges in a post-conflict environment, so that they are able to respond quickly and make visible results obvious to the average person, which is important in those environments. So how the Fund works with governments and other partners to accelerate growth and facilitate the resumption of private sector based activities is extremely important. And, of course, with respect to the inherited debt that many fragile countries have, finding a more coordinated way of dealing with the challenges of clearing long-standing arrears and getting access to debt relief is also an important challenge. The IMF has been discussing and looking at the instruments we have to help respond to those challenges with our fragile member states and we will continue to work on those issues.
IMF Survey: The IMF continues to provide a lot of technical assistance to Africa. How effective is this work?
Sayeh: The IMF does provide significant technical assistance. Of the total technical assistance provided by the Fund, some 38 percent goes to African countries. Technical assistance, of course, is only productive when it’s provided in a context of strong demand for such assistance, as well as a strong commitment to using the results of technical advice. In that context, we’re certainly looking at our capacity-building effort in the Fund to make sure that what we do in providing technical assistance is not supply driven—as it has been, at times in the past—and to make sure that countries really are committed to moving forward with the advice that we provide. Technical assistance is extremely important in the context of several challenges in African countries: on the one hand, a fragile state just emerging from conflict with very little capacity of its own—and so needing assistance from the Fund on practical management of public finances and dealing with the inheritance of debt—to the more mature reformers among African countries that are now frontier emerging market countries and need a different type of assistance in understanding the links between capital flows and their financial sectors and how to manage those new challenges.
IMF Survey: What are the key messages that you would like to convey to the Fund’s African members at the IMF and World Bank Annual Meetings this fall?
Sayeh: I’m very much looking forward to my first Annual Meetings as Director of the African Department. I’ll be on the other side this time and so I certainly understand many of the concerns that our African governors will be bringing to the table when we meet. First and foremost on their minds will be the impact of the fuel and food crisis, how they have responded, and how the Fund has helped them to respond. Here, we want to reiterate the advice that we’ve been giving African countries in terms of short-term efforts to protect the poor from the impact of the shock, and emphasize the need to make sure that the policy response is sustainable and that countries mitigate the impact on inflation by pursuing appropriate monetary policies. There will be some countries with which we discuss possible additional financing from the Fund, and there will be other countries where we talk about the advice that we can give them in managing their own response to the crisis.
Second, we will also be talking about how to mitigate the risk to debt sustainability from borrowing to finance infrastructure and, hopefully, looking at some of the issues around debt management and the challenges of financing infrastructure.
Finally, we want to also talk about how we’re positioning the Fund to respond to the needs of fragile states and how we’re looking at the reform of different lending instruments to help countries deal with various shocks. To this end, we’re in the process of proposing reforms to the Exogenous Shock Facility, as well as reviewing Fund instruments more generally. So we have a full agenda for the Annual Meetings, and I’m looking forward to them.
Africa Needs More Spending on Health, IMF Tells Accra Panel
Africa needs a significant increase in spending on health, IMF Deputy Managing Director Murilo Portugal told an international conference in Accra, Ghana.
Speaking in a panel discussion on financing health sector interventions at the Third High Level Forum on Aid Effectiveness, he noted that health spending in Africa had “only increased marginally” from an average of 1.6 percent of GDP in 2000 to 1.8 percent of GDP in 2007.
“The IMF is in favor of increasing spending for priority sectors, including health,” Portugal said on September 2, adding that higher health spending is important for meeting the Millennium Development Goals, three of which are health related.
Portugal stated that public spending on health is low in low-income countries, especially in Africa, although spending totals often do not aggregate all health-related expenditure, since much health spending is off budget.
Portugal said creating sustainable fiscal space for priority spending has been a key element of the IMF’s policy advice in recent years. Countries have several options for creating such space:
• Mobilizing additional domestic revenues;
• Shifting resources from less productive areas, such as untargeted subsidies or unproductive activities of the civil service;
• Borrowing additional resources; and
• Increasing external financial assistance, which is why aid predictability is so important.
Increasing health spending on its own is not sufficient to achieve better health outcomes, Portugal stated. Improved health outcomes are driven by complex factors such as female education, which influences infant mortality and fertility rates. Improvements in water and sanitation are also critical for better health outcomes.
“Therefore, when we advocate additional financing for health, we should also call for adequate financing for these complementary sectors, without which our ultimate objective of improving health outcomes may remain unrealized,” Portugal told the panel.
Agenda for action
Ministers from more than 100 countries and heads of international financial institutions, donor organizations, and civil society organizations from around the world attended the Accra meeting.
In months of preparation for the event, the IMF staff worked with others to help define a consensus on the meeting agenda, stressing, in particular the need for predictable aid flows.
At the end of the three-day forum, the Accra Agenda for Action (AAA) was adopted. The AAA emphasized the importance of deepening country ownership, building more effective and inclusive development partnerships, and achieving development results and accounting for them. The forum agreed that country systems should be strengthened and used to the maximum extent, the fragmentation of aid should be reduced, and that aid should be further untied and made more transparent.
Specific commitments were made to change, over time, the nature of donor conditionality to support ownership; increase the medium-term predictability of aid; and strengthen developing-country capacity to lead and manage development strategies.
The forum also recognized that aid policies must be adapted to the specific requirements of fragile states, and committed to deepen the engagement of parliaments, civil society organizations, and other stakeholders in aid relationships.
“The IMF fully endorses the AAA and we will continue to support our member countries and the donor community in meeting the objectives laid down in the agenda,” Portugal said in a statement in Accra. “Improving the effectiveness of aid, together with further scaling-up of development assistance, will be essential to helping low-income countries achieve the Millennium Development Goals.”
The Accra meeting was held at the halfway point toward the 2010 target date set by the 2005 Paris Declaration on Aid Effectiveness. The Paris Declaration set 11 objectives for reforming aid delivery and management and achieving better results.