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The Impact of the Global Financial Crisis on Sub-Saharan Africa Regional Economic Outlook April 24, 2009 Norbert Funke, Victor Lledo, Gustavo Ramirez, and Irene Yackovlev, Disclaimer: The views expressed herein are those of the author(s) and should not be attributed to the IMF, its Executive Board, or its management. Agenda How are recent developments in the world economy affecting sub-Saharan Africa? Outlook and Risks for sub-Saharan Africa Confronting Challenges: domestic policies and donor support Lower demand for African exports 5 15 (Weighted average, percent) 4 12 3 9 2 6 1 3 0 0 -1 World trade grow th (Right scale) SSA Trade partners Latest WEO projections (Left scale) -3 -2 -6 -3 -9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Key commodity prices have fallen to or even below Commodity 2007Prices levels… Commodity Prices 470 (Index, 2003=100) WEO forecast Oil 420 370 Sub-Saharan African metals 320 270 220 170 Sub-Saharan African, other1 120 70 2003 2004 2005 2006 2007 2008 09 Sources: IMF, Commodity Prices; and UN Comtrade. 1 Composite of cocoa, coffee, sugar, tea, and wood, weighted by sub-Saharan African exports. Financing flows have declined 70 (Billions of U.S. dollars) 60 50 40 Aid Remittances Portfolio Foreign direct investment 30 20 10 0 -10 -20 2000 2002 Source: IMF, World Economic Outlook. 2004 2006 2008 A decline in world growth drags down growth in sub-Saharan Africa Sub-Saharan Africa and the World: Real GDP Growth1 (Percent) 8 Sub-Saharan Africa 6 4 World 2 0 -2 1971 1976 1981 1986 1991 1996 2001 2006 Source: IMF, World Economic Outlook. 1 Periods of U.S. recessions shaded (National Bureau of Economic Research). The outlook has deteriorated markedly Sub-Saharan Africa: Current and Previous Forecast for 2009 Current and Previous Forecast for 2009 Real GDP growth (Percent) 10 April 2008 REO forecast 5 Current account balance (Percent of GDP) 0 -5 Latest AFR projections 0 -5 Fiscal balance (Percent of GDP) Source: IMF, African Department database 5 Inflation (Percent) Growth is projected to decline in 2009 and recover mildly in 2010 GDP Growth, 2000-10 18 (Percent) 16 14 Sub-Saharan Africa Oil-exporting countries Middle-income countries Low-income countries Fragile countries 12 10 8 6 4 2 0 -2 -4 2000 2002 2004 Source: IMF, African Department database. 2006 2008 2010 Inflation will decline in most countries Inflation . . . and inflation to fall in most countries. Inflation 35 (Percent) 30 Sub-Saharan Africa Oil-exporting countries Middle-income countries Low-income countries Fragile countries 25 20 15 10 5 0 2000 2002 2004 2006 2008 Sources: IMF, World Economic Outlook; and IMF, African Department database. 2010 Risks to the outlook are Sub-Saharan Africa: mostly onFigure the1.14. downside Growth Prospects 1 Growth Prospects 8 Real GDP growth 8 (Percent) 7 7 6 6 5 5 4 4 3 3 Confidence intervals 2 2 50 percent 1 1 70 percent 90 percent 0 0 -1 2000 2001 2002 2003 2004 2005 2006 2007 Sources: IMF, World Economic Outlook; and IMF, African Department database. 1 Including Zimbabwe. 2008 -1 2009 Confronting challenges Use available fiscal space Where possible, ease monetary policy and let the exchange rate adjust to the external environment Closely monitor financial vulnerabilities and be prepared to act promptly Keep medium-term goals in sight Use available fiscal space Risk of Debt Distress Output gap (Number of countries, 44 total) 20 Financing constraints 15 7 out of 9 have not reached the HIPC Completion Point 10 Debt sustainability 5 0 Other constraints Low Moderate Source: IMF staff estimates High In distress Fiscal deficits are expected to widen Central Government Overall Fiscal Balances Central government overall fiscal balances, 2000-10 15 (Percent of GDP) Sub-Saharan Africa Oil-exporting countries Middle-income countries Low-income countries Fragile countries 10 5 0 -5 -10 2000 2002 2004 Source: IMF, African Department database. 2006 2008 2010 Where possible, ease monetary policy Some countries began to ease in 2008 Change in Monetary Policy (Percent of SSA countries) 80 60 Second semester 2008 First semester 2008 70 50 60 40 50 40 30 30 20 20 10 10 0 0 Tightening No change in policy Source: IMF staff estimates Loosening Tightening No change in policy Loosening Let the exchange rate adjust to the external environment Real Effective Exchange Rates in Oil Exporters and by Exchange Rate Regime 130 (Index, 2007=100) 125 Change in International Reserves Since September 2008 25 (Percent of Sub-Saharan African countries) Oil exporters 120 20 115 Monetary unions 110 15 105 10 100 Floating 95 5 Conventional pegs 90 85 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Source: IMF, Information Notice System. 0 < -15 -15 to -10 -10 to -5 -5 to 0 0 to 5 Change in reserves, in percent of September 2008 level Source: IMF, International Financial Statistics. >5 The external position is expected to weaken External Current Account Balances External positions are also expected to weaken. External Current Account Balances 16 (Percent of GDP) Sub-Saharan Africa Oil-exporting countries Middle-income countries Low-income countries Fragile countries 12 8 4 0 -4 -8 -12 2000 2002 2004 Source: IMF, African Department database. 2006 2008 2010 Keep medium-term goals in sight Countries need to avoid imposing new restrictions on trade flows as they work to mitigate the impact of the global crisis. It is important now to move ahead with planned structural reforms in: Public financial management Social safety nets Cost of doing business How can the international community help? All these measures require the support of the international community. A lack of resources could set Africa back by several years in terms of reducing poverty and providing infrastructure. This is the time where international commitments to double annual aid promised by the G-8 Heads of State at the Gleneagles summit in 2005 need to be honored and even increased. The Role of the IMF To help African countries meet the challenges of the current crisis, the IMF is: Revising its lending instruments to make them more flexible Working to double concessional lending to low income countries Continuing to provide policy advice and extensive technical assistance for strengthening economic policymaking in Africa Thank you