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Source: www.africaecon.org

Africa Economic Institute

IMF Weary of Impact on Sub-Saharan Africa


  The global financial crisis has managed to impact all areas of the world, including nations that were isolated from the international banking problems. The International Monetary Fund has said that twenty-two of the world's poorest nations, especially those in sub-Saharan Africa, will require an additional funding of $25 billion.…

The global financial crisis has managed to impact all areas of the world, including nations that were isolated from the international banking problems. The International Monetary Fund has said that twenty-two of the world’s poorest nations, especially those in sub-Saharan Africa, will require an additional funding of $25 billion. IMF Managing Director Dominique Strauss-Kahn said that the IMF wanted to double the loan amount to the poorer nations over the next years. But even the extra funding is not enough to fill the financing needs.

Nations are reluctant to contribute the the scale of what the IMF states is necessary to help poorer nations. The World Bank, for example, is having difficulty getting nations to designate 0.7% of their stimulus packages to nations hurt by the global downturn. According to the IMF, the sub-Saharan countries that will most likely need aid include Angola, Ivory Coast, Ghana and Nigeria. The rest of the poorer nations include Albania, Armenia, Haiti, Honduras, Vietnam and Tajikistan.

The nations that are included in the IMF’s study all have observed a downturn in growth prospects for 2009. The official reserves for these nations are generally sparse, only covering three to four months of imports. These factors make it difficult for countries to pay for import bills and government expenses.  Inflation rates are said to be at about 7%.

Originally, these “vulnerable” nations were protected from the international banking crisis because the banks had little exposure to the American and European financial instruments. Consequently, the financial crisis did little to affect the nations’ economies where IMF- projected sub-Sahran Africa is projected to grow 6.7%, higher than the 3.8% predicted for the global economy.

But the United States and Europe find themselves in a recession, with their exports, investments, remittances and trade all having  decreased significantly. The IMF has now recently projected that sub-Saharan growth will only be 3.5%, whilst global growth is just 0.5%. Even those estimates, according to the IMF Managing Director, are optimistic.

If economic conditions continue towards its downward path, IMF projects that 48 developing nations would need an additional $138 billion in financing.

Over recent years, before the financial crisis, sub-Saharan Africa has prospered from the metal and oil price boom. Foreign investors from the Middle East, Asia and the West looked to invest in South Africa and Nigeria, leading to building commercial centers in Johannesburg and Lagos. African countries benefited from the influx of foreign investors. The countries demanded greater benefits from multinational companies looking to exploit Africa’s resources. Consequently, some African countries implemented democratic reforms and some nations saw the birth of a middle class.

However, the economic growth slowed down last year. Many of the African countries were hit by food and fuel inflation. The hiked prices have forced governments to draw on their reserves to offer subsidies, and import basic necessities at higher prices. The consequence of the food and fuel inflation further weakened already poor nations. When the commodity downturn hit and demand plummeted, African nations saw a loss in revenue with a lack of demand for the region’s precious stones, metals and other commodities.

The IMF believes that the list of “highly vulnerable” nations is likely to grow in 2009.

Source: www.AfricaEcon.org
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Source: www.africaecon.org