The FINANCIAL — In a speech in Nairobi, Kenya, Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), assessed the impact of the global economic and financial crisis on Africa.
While noting that the crisis had struck Africa through many different channels, he said that “all across the continent, we can see signs of life, with rebounds in trade, export earnings, bank credit, and commercial activity.” He said the IMF expects growth of around 4½ percent in 2010. “In short, I think that Africa is back—although a lot depends on a global recovery that is in its early stages.”
Mr. Strauss-Kahn said that because many African countries had undertaken good policies before the global economic crisis, this had helped to inoculate them against a more severe downturn—strengthening budget positions, reducing debt burdens, holding down inflation, and building comfortable reserve cushions. He noted that because debt positions had improved dramatically, many countries had been able to use the budget to counteract the crisis, including preserving social spending.
At the same time, Mr. Strauss-Kahn emphasized that there was no room for complacency regarding Africa’s economic outlook. “This is not the time to rest on our laurels,” he said. “Africa remains highly vulnerable to economic dislocation from many different sources. Think about swings in commodity prices, natural disasters, or instability in neighboring countries. Think about the risks that come from relying heavily on remittances, aid, and financial flows.”
Looking forward, he said the twin challenges for Africa are to revive strong growth and reinforce resilience to shocks. “The first place to start is with macroeconomic policies. A major lesson from the crisis is that countries that sowed in times of plenty were able reap in times of loss. Policy buffers must therefore be rebuilt, to allow for future countercyclical responses, with fiscal policy and with reserves. Social safety nets must be strengthened—this is the first line of defense against adverse shocks. We should also beware that widening income inequality—across regions or segments of the population—can aggravate tensions and make shocks more destabilizing.”
Mr. Strauss-Kahn also drew attention to the challenge of climate change. He called upon the international community to marshal the resources needed to help developing countries, particularly low-income countries, address this issue—which he said could be “the shock to end all shocks.” He added that “without action, Africa will suffer more from drought, flooding, food shortages, and disease—possibly provoking further instability and conflict.”
He said that while “some may rightly argue that climate change is not in the mandate of the IMF … the amount of resources needed has clear macroeconomic implications—sustainable growth in developing countries will require large-scale, long-term investments for climate change adaptation and mitigation.” In this context, he said IMF staff are working on the idea of a “Green Fund” with the capacity to raise US$100 billion a year by 2020. He emphasized that while the IMF did not intend to manage such a fund, it aimed to offer something that “can make a significant contribution to the global debate and for consideration by the international community. And now is the time to put new ideas on the table.” He acknowledged that launching such a scheme would entail a major political effort but he also said that the “potential pay-off is enormous—for Africa and the world.”