Financial crisis will widen growth deficit - IMF

Financial crisis will widen growth deficit - IMF

Martin Luther Oketch

Kampala

Current account deficits deepened by the global financial crisis could weaken Africa’s trade competitiveness in 2009, according to a new survey by the International Monetary Fund (IMF). The research projects that the region’s current account deficit will widen by more than 4 percent this year, with major deteriorations in both fiscal and external accounts.

The IMF says despite weak international financial linkages, Africa is likely to be hard hit by the global economic downturn, putting at risk the progress made across the continent in recent years.

Uganda registered a positive current account balance in December 2008 at $179.5 million, up from the deficit of $59.2 million registered in November 2007, according to the Bank of Uganda.

“Priority for Africa and for the international community needs to be preservation of the significant achievements in Africa over the past decade,” said IMF Deputy Managing Director Takatoshi Kato.

Speaking about the survey during the 12th summit of the African Union in Addis Ababa, Ethiopia on February 3, Mr Kato said world growth would come to a virtual halt in 2009—the lowest rate in 60 years.

“With the expectation of a more pronounced global downturn, weaker commodity prices, and pressure on capital flows, the IMF expects growth in sub-Saharan Africa to slow from about 5 percent in 2008 to about 3 percent in 2009, about 3 percentage points less than projected just four months ago. With significant uncertainty at the global level, risks to growth remain tilted to the downside,” he said.

Kato said that the crisis poses unique and varied challenges for African policymakers, particularly because of its complex nature and uncertain duration.
“Because circumstances differ so much across countries, there is no single recipe.

But a priority for all countries in the region must be to protect the hard-won improvements in economic fundamentals—more sustainable debt levels, lower inflation, liberalized trade and structural reforms—that enabled the first period of sustained growth in the region in decades,” he said.

Mr Kato said African governments should focus on medium-term spending plans, tight fiscal and monetary policies to stabilize exchange rates, and close monitoring of the banking system as they attempt to navigate fallout from the crisis this year. He also stressed that the IMF was ready to do its part to help Africa, namely by encouraging donors to live up to their financial commitments to the continent.