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Issues Brief: African countries face challenges in tackling major problems of reducing debt

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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After two decades of economic stagnation and little progress in poverty reduction, the seeds of an economic renaissance in sub-Saharan Africa, with faster growth and less poverty, have been sown in recent years through innovative measures such as the IMF’s Poverty Reduction and Growth Facility (PRGF) and the joint IMF-World Bank Heavily Indebted Poor Countries (HIPC) Initiative. A recently released IMF Issues Brief outlines the key policy issues that countries in the region will need to address and the contribution that the international community, including the IMF, will need to make to build on recent gains and establish a cycle of sustained high-quality growth. This and other Issues Briefs are available on the IMF’s website (www.imf.org).

In reviewing the economic record, the Issues Brief observes that, following disappointing economic performance in the 1980s and the early 1990s, sub-Saharan Africa’s performance improved in1995–97 and real per capita incomes began to rise. This improvement reflected primarily a new commitment by many countries to sound macroeconomic policies and more open and better managed economies, to address their daunting economic and social challenges and to improve their terms of trade.

Despite the recent progress, the Issues Brief cautions, growth remains fragile, standards of living are still very low, and poverty is widespread. Health and education indicators continue to be poor and job opportunities have often not kept pace with the growth of the labor force. The region has been unable to share fully in the benefits of globalization. In most countries, inadequate infrastructure, weak tax administration and poor enforcement, lack of transparency in tax and investment policies, poor communications, undeveloped financial services, and weak judiciaries have all militated against fuller engagement in the international economy. Armed conflicts also frequently damage economic prospects. The spread of HIV/AIDS is reducing labor productivity and human welfare dramatically.

The Issues Brief points out that faster sustainable growth is essential for improving living standards and reducing poverty: given the low level of per capita income in the region, redistribution alone would barely dent the problem of poverty. In addition to the need to maintain the focus both on macroeconomic stability—through appropriate fiscal, monetary, and exchange rate policies—and on structural reforms to improve the efficiency of markets, there are fundamental challenges in three key areas:

  • To design and implement comprehensive policy strategies that promote faster growth and poverty reduction and at the same time have broad public support.

  • To improve governance, promote the rule of law, encourage openness and transparency of government, reduce opportunities for corruption, and create a more favorable environment for private sector investment and production.

  • To strengthen external payments positions. Debt relief in support of poverty-reducing policy programs has an important role here, especially for the lowest-income heavily indebted countries.

The IMF provides its member countries in Africa, as elsewhere, with policy advice, financial assistance when needed in support of economic policy programs, and technical assistance. Between 1987 and 1999, financial assistance was provided through the Fund’s Enhanced Structural Adjustment Facility (ESAF). But in late 1999, the ESAF was transformed into the Poverty Reduction and Growth Facility (PRGF), signifying a new approach to policy programs and poverty reduction, adopted in collaboration with the World Bank and other international creditors and donors (see IMF Survey Supplement, September 2000, pages 16–17).

In conjunction with this new approach, the IMF and the World Bank, together with other creditors and donors, intensified their efforts under the HIPC Initiative (see related articles in this issue of the IMF Survey).

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