Prudent Policies Help Sub-Saharan Africa Ride Downturn

• Author: International Monetary Fund

But the world slowdown is exacting a heavy toll that is all the more harmful given endemic poverty.

In its Regional Economic Outlook for the subcontinent, the IMF says that sub-Saharan Africa (SSA) is set for a recovery to mirror that projected for the rest of the world. The report adds that while average per capita incomes should escape the sustained reductions that marked previous downturns, living standards for some may deteriorate markedly and there may be some acute increases in poverty.

Policies in most SSA economies seem to be responding more positively to the current global economic crisis better than they have in the past, the report states. Fiscal and monetary policies have helped counter the effects of the slowdown and the region seems to have generally avoided the major macroeconomic instabilities that followed previous global downturns.

"The effective use of counter-cyclical macroeconomic tools marks a new era in the policy environment of sub-Saharan Africa," Antoinette Sayeh, Director of the IMF's African Department, said in a press briefing.

Growth pickup forecast

Output in sub-Saharan Africa is expected to expand by just 1 percent in 2009 compared with an estimated 5½ percent in 2008 (see table). If government policies remain supportive, and global economic growth recovers as currently expected, growth in SSA should pick up to just over 4 percent in 2010. But there are significant downside risks.

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Room for maneuver

Relatively prudent macroeconomic policies during the recent upswing seem to have given SSA countries some room for maneuver in the downturn. On the fiscal side, for example, many countries have been able to let automatic stabilizers operate, and have in some cases even been able to pursue active countercyclical policies.

For the region as a whole, the fiscal balance (including grants) has swung from a surplus of just over 1¼ percent of GDP in 2008 to an expected deficit of 4¾ percent in 2009. This contrasts with the much more limited increase in deficits observed in past global slowdowns, not only because the output shocks were smaller but also most likely because in previous downturns high initial deficits, often accompanied by high debt, limited room for maneuver.

IMF help for Africa

In her briefing, Sayeh highlighted the help the IMF has given to Africa during the crisis. "We...