IMF warns Africa's growth will be affected by global crisis

Wednesday, March 11, 2009

Nairobi - The International Monetary Fund (IMF) has warned that Africa's economic growth will be affected by the continuing world economic crisis.

It further predicted that growth in sub-Saharan Africa will slow to 3.25 percent this year, half the growth rate it previously projected.

The slump in commodity prices and the credit squeeze are the main culprits, the IMF said in a report, which was released ahead of a major IMF conference on Tuesday in the Tanzanian capital, Dar Es-Salaam, to discuss how to respond to the crisis.

The conference was to discuss what external support the IMF and other western donors might be able to provide to help mitigate the impact of the crisis on Africa, which has the highest poverty rate of any region in the world.

In recent years, many African countries have enjoyed strong growth rates, boosted by rising commodity prices, including oil.

"The gains of the past decade, during which many countries in sub-Saharan Africa saw sustained high rates of economic growth and rising income levels, are at risk," said Antoinette Sayeh, the IMF's African department director.

Less than a year ago, the IMF's forecast for sub-Saharan Africa was economic growth of 6.7 percent in 2009, up from the 5.0 percent growth enjoyed in 2008.

The new low-growth forecast means that many African countries are likely to see very little increase in living standards, and they could fall further behind in meeting poverty targets.

The IMF report says that 15 of the 21 countries which it judges as most vulnerable to the crisis are in Africa and many countries will not have the funds necessary to protect the poor from the affects of the downturn and may need external help.

"While African policymakers are rising to this unexpected challenge, donors must also play their part. They must maintain their commitments and scale up, not scale back their support," says the report.

It adds that while Africa has little direct exposure to the credit crisis as its banks have not invested much, if at all, in the problem financial assets at the heart of the crisis, the global downturn has undermined demand for many industrial commodities, which are important exports for several African countries.

These include oil in the case of Nigeria, Angola and Equatorial Guinea, and copper in the case of Zambia.

Africa is also likely to be hit by reduced financial flows from abroad, including fewer remittances and less foreign direct investment.

However, providing more aid could prove controversial. The IMF itself is expected to ask for a substantial increase in its funding at the summit of the Group of 20 (G20) leading developed and emerging countries in London next month but it is not certain whether such additional funds will be forthcoming.

The IMF points out, historically foreign aid declines during an economic downturn.