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Africa Can't Avoid Problems Facing Global Economy - IMF Report

Feb 20, 2009, 6:57 AM | Article By: Baboucarr Senghore

It is evident that the global economy is experiencing a major slowdown owing primarily to the worst financial crisis since the great depression. Stock markets have become increasingly volatile, some major financial institutions in advanced economies have collapsed, capital flows to emerging markets have weakened and some currencies have depreciated sharply.

Governments have taken unprecedented measures to address these problems. Despite this, international financial markets are still marked by a high degree of uncertainty and risks of a global recession are high.

But what exactly does the global financial crisis mean for Africa? "Africa cannot avoid the problems facing the global economy, but working together, we can ensure that countries preserve the foundation of their recent success so that they can benefit when the global economy recovers," says Antoinette M. Sayeh, director, African Department, International Monetary Fund.

In a statement made available to this paper, the IMF African Department Director noted that there is no question that the global financial crisis is having serious effects on sub-Saharan Africa. "Investors around the world are re-assessing their plans; Investment in Africa's stock and bond markets have fallen already. Moreover, with weakening growth prospects and tight credit markets, it is likely that investors will cut back on their direct investments this year," she said.

"Until now, the solid growth of these investments had been a welcome payoff for the continent's reform efforts. Africans working abroad are facing worsening employment prospects so there is a serious risk that they will reduce remittances to the families back home," the statement said.

According to the IMF African Department director, all these changes are putting pressure not only on the incomes of individual Africans but on the budgets of their governments as well. "As demand for African exports falls, companies earn less and governments take in less in taxes".

The good news, the statement added, is that many African countries are now much healthier than they were ten years ago. "Many countries have built up comfortable levels of foreign exchange reserves that provide a cushion while these countries adjust to the new economic environment.

"Low levels of public debt and high savings in recent years provide some countries with the scope to sustain or even increase government spending and widen deficits, without risking instability".

The statement further reveals that the IMF is working with its member countries in Africa to help them ensure that the global crisis does not wipe out the hard-won gains of recent years. "To that end, the IMF has provided increased financial support to countries that were hit hard by last year's surges in food and fuel prices, and recently introduced a new more flexible financing facility for countries hit by unexpected shocks," the IMF statement noted.

The statement also maintained that the international community has a key role to play. "In this challenging time for Africa, it is essential that the international community meet its commitments to provide financial support. Beyond that, it is critical that the region is able to benefit from an open trading system because, over time, this remains central to its economic development".