Africa Faces Twin Challenges After Global Crisis

• Author: Jeremy Clift
• Position: IMF Survey online

Strauss-Kahn, who arrives in Kenya on March 6, will also visit South Africa and Zambia to reinforce the IMF’s improved relations with the continent, talk with political and business leaders, and promote the continued transformation of Africa.

"As I’ve said many times in the past, African countries were largely innocent victims of the crisis. Thankfully, the tide seems to have turned and all across the continent, we can see signs of a rebound-in trade, export earnings, bank credit, and commercial activity." Strauss-Kahn told reporters before leaving.

Stronger policies

Stronger monetary and budget policies, together with structural reforms in many countries, helped Africa come through the global financial crisis better than in the past, IMF First Deputy Managing Director John Lipsky said last month during a trip to Ghana and Liberia.

Although growth across sub-Saharan Africa plummeted during the global crisis to an average of 2 percent in 2009 from 5.6 percent the previous year, the IMF projects that it will bounce back to 4½ percent this year and 5½ percent in 2011.

Antoinette Sayeh, head of the IMF’s African Department, points to several important factors that helped African economies weather the crisis.

- Improved policies. Many African countries, from the late 1990s onward, ran better policies than in the past, which helped mitigate the impact of the downturn-with strengthened fiscal positions, reduced debt burdens, lower inflation, and better cushions of foreign exchange reserves.

- Fiscal space. Because fiscal deficits and debt positions had improved dramatically, many countries were able to use fiscal policy to counteract the crisis, rather than making it worse. They strived to preserve-and sometimes even increase-public spending, at a time when revenue was falling rapidly. Fiscal policy was countercyclical in two-thirds of sub-Saharan African countries in 2009.

- Room for interest rate cuts. Because inflation had come under control, they were also able to use interest rate policy and reduce interest rates as another means of mitigating the impact of the crisis, and where exchange rates were flexible, countries let them adjust and help them deal with the shocks, contributing to their resilience.

- Countries generally protected social spending during the crisis, using a variety of strategies. In particular, countries maintained health and education expenditures at...