African Finance Officials Outline Strategy to Weather Global Economic Crisis

Tanzanian Minister for Finance and Economic Affairs, Mr. Mustafa Mkulo

African Finance Ministers and central bankers in Washington last week for the spring meetings of the World Bank and the International Monetary Fund (IMF) were cautiously optimistic that with careful fiscal policies at home and support from multilateral institutions and international donors, many African countries will be able to weather the global economic downturn and even emerge from it stronger than before. “The crisis is now a real threat to African countries and their economies, but our governments are taking serious measures to minimize these impacts,” said Mr. Mustafa Mkulo, Tanzania’s Minister for Finance and Economic Affairs. “We are taking measures to preserve macroeconomic stability and promote investment. African countries have intensified surveillance and supervision of these banking systems and continue to ensure prudent monetary policies aimed at restoring and maintaining low and stable inflation while ensuring adequate liquidity to the economy.” While not downplaying the seriousness of the challenge thrust upon them by the economic crisis – the World Bank estimates that an additional 55 billion to 90 billion people will be trapped in extreme poverty in 2009 – several African finance officials pointed to reduced debt and strong growth over the past decade as providing some fiscal space within which policymakers can work to mitigate the worst effects of the downturn.

Zambian Minister of Finance and National Planning, Mr. Situmbeko Musokotwane

In Zambia, where economic growth has been severely affected by the drop in prices for copper, Dr. Situmbeko Musokotwane, Minister of Finance and National Planning, said the government had lowered taxes in the mining sector to save jobs and stimulated value addition by building smelting capacity to create new jobs. The government has also instituted tax cuts in the agriculture and construction sectors as a means of diversifying the economy and the job market. In addition, he said, the Zambian government has increased domestic borrowing from 1.4% of GDP last year to 1.8% of GDP this year, to raise money to put into education, health care and infrastructure to strengthen Zambia’s base for private sector investment. “So for us, this [economic crisis] is really an opportunity to reorganize ourselves, to diversify the economy, create conditions for private sector investment to come in because we believe this is the future,” he added. Uganda’s Central Bank Governor, Mr. Emmanuel Tumusiime-Mutebile, emphasized the need to maintain flexibility in markets and policies to stem the force of the crisis. The Bank of Uganda has allowed the exchange rate of the Ugandan shilling to depreciate to help guard the country against significant shocks in the financial sector. “We still believe that the flexibility of our policies has allowed us to protect the rate of growth in our economy,” he said. While Uganda’s growth rate will be lower in 2009/2010 than the 6.2% growth it enjoyed last year, it is still expected to be a relatively healthy 5.5%. Mr. Mkulo said the Government of Tanzania is currently putting together an economic rescue plan that will preserve social safety nets to protect jobs, avert food shortages and sustain vital health programs. The plan will also include measures to restructure debt and risk-sharing between the government and the financial sector, as well as measures aimed at building resilience through increased diversification. But even as African officials pointed to the efforts of individual governments to address the crisis at home, they emphasized the importance of the international community following through on the commitments it made at the G-20 summit in London in early April. Among those commitments were:

• Tripling the resources available to the IMF to $750 billion;
• Supporting a new allocation of Special Drawing Rights of $250 billion to help developing countries;
• Providing $100 billion more to multilateral development banks such as the World Bank Group and the African Development Bank (AfDB) to fund infrastructure projects, social programs and microfinance for small and medium-size enterprises;
• Giving $250 billion in support for trade finance;
• Proposing that the IMF sell part of its gold reserves to finance $50 billion in concessional loans to the poorest countries; and
• Strengthening and reforming multilateral financial institutions to ensure that the emerging and developing economies have greater representation.

As Mr. Lesetja Kganyago, Director General of the South African Treasury, remarked, “the deliverables should match the announceables.” “This crisis has come at a time when African governments have taken broad-based measures to reform their economies,” Mr. Mkulo said. “Rich countries should provide part of their stimulus resources to developing countries to enable these countries to deal with the threat they are facing. They must ensure that they provide additional resources to the international financial institutions to enable these institutions to increase their responsive capabilities and capacities to the current economic challenges. Last, but not least, I call upon developed countries to broaden market access to exports from developing countries and particularly from Africa.” The meetings reflected a broad consensus across Africa that trade and investment, as well as integration into the global economy, are the long-term solutions for development and reducing poverty.