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IMF / AFRICA ECONOMIC OUTLOOK
STORY: IMF / AFRICA ECONOMIC OUTLOOK
TRT: 3.00
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS
DATELINE: 3 MAY 2011, WASHINGTON, DC
RECENT, WASHINGTON, DC
1. Wide shot, exterior IMF headquarters
3 MAY 2011, WASHINGTON, DC
2. SOUNDBITE (English) Antoinette Sayeh, Director, African Department, IMF:
“Sub-Saharan Africa’s recovery from the global economic downturn is proceeding quite well. Our best estimates at this point is that in 2011 we’ll see growth approach some 5 and a half percent, up from the 5 percent growth achieved in 2010. All of this, of course, depends on the global economic recovery continuing to proceed as well. And as you know, there are some uncertainties surrounding that.”
FILE / RECENT, NAIROBI, KENYA
3. Med shot, laborers digging a hole
3 MAY 2011, WASHINGTON, DC
4. SOUNDBITE (English) Antoinette Sayeh, Director, African Department, IMF:
“So far the impact on domestic inflation in many countries has been limited. Some countries have had very good harvests and so have been able to see a mitigation on the inflation rate because of that. Our sense, though, is that in the next few months many countries, if not most countries, will see, certainly from the food shock and also from the fuel shock, high pressures on inflation that they will then have to respond to.”
FILE / RECENT, NAIROBI, KENYA
5. Med shot, bus traveling by pedestrians
3 MAY 2011, WASHINGTON, DC
6. SOUNDBITE (English) Antoinette Sayeh, Director, African Department, IMF:
“In the short term, of course, with these increased food and fuel prices it is important for governments to look at their budgets and see what room they have to implement targeted initiatives to mitigate the impact on the poor. Of course, they have less space this time around than they did in 2008, so it’s very, very important to make sure that they avoid very costly initiatives and that those initiatives are properly targeted on those who need help most, and those are the poor.”
FILE / RECENT, NAIROBI, KENYA
7. Med shot, traffic on a busy street
3 MAY 2011, WASHINGTON, DC
8. SOUNDBITE (English) Antoinette Sayeh, Director, African Department, IMF:
“From now and through the medium term countries have to try to rebuild the policy space they had that helped them respond so well to the global crisis. And so that requires reducing debt and putting in place policies to increase reserves, dealing with financial sector issues, all of that with the view to giving them the capacity to deal with future shocks. And it’s clear that they have been faced with a number of successive shocks and there will be more in the future, so it’s important to have the wherewithal to deal with those problems when they do come.”
RECENT, WASHINGTON, DC
9. Wide shot, exterior IMF headquarters
Sub-Saharan Africa’s recovery from the crisis-induced slowdown is well under way, with growth in most countries now back fairly close to the high levels of the mid-2000s. Growth this year is expected to average 5 and a half percent, and 6 percent in 2012.
“Sub-Saharan Africa’s recovery from the global economic downturn is proceeding quite well. Our best estimates at this point is that in 2011 we’ll see growth approach some 5-1/2 percent, up from the 5 percent growth achieved in 2010. All of this, of course, depends on the global economic recovery continuing to proceed as well. And as you know, there are some uncertainties surrounding that,” said Antoinette Sayeh, Director of the IMF’s African Department.
The surge in global food and fuel prices began to nudge up consumer price inflation rates across the region. To date there has been considerable variation among countries in the extent of pass-through to domestic prices. In some, inflation has not increased much, reflecting good local harvests. But in several countries, inflation has already increased perceptibly.
“So far the impact on domestic inflation in many countries has been limited. Some countries have had very good harvests and so have been able to see a mitigation on the inflation rate because of that. Our sense, though, is that in the next few months many countries, if not most countries, will see, certainly from the food shock and also from the fuel shock, high pressures on inflation that they will then have to respond to,” Sayeh said.
In the wake of these developments, the poor in urban areas and landless rural households are set to face increasing difficulties meeting their food and transportation bills. Some countries have introduced price controls to soften the impact. But such broad-brush controls are unlikely to be sustainable because they disrupt markets and produce perverse incentives. Furthermore, subsidies on fuel can be very expensive and ineffective in helping the poor.
The outlook notes however that there are ways of targeting support that provide cost-effective ways of protecting vulnerable families against food price increases. Selective tax reductions or subsidies on food items primarily consumed by the poor are one route. Another is to provide direct income support .The report supports high priority being given in the coming months to establishing such safety nets.
“In the short term, of course, with these increased food and fuel prices it is important for governments to look at their budgets and see what room they have to implement targeted initiatives to mitigate the impact on the poor. Of course, they have less space this time around than they did in 2008, so it’s very, very important to make sure that they avoid very costly initiatives and that those initiatives are properly targeted on those who need help most, and those are the poor,” Sayeh.
Although fiscal deficits in low-income countries are beginning to decline since their crisis-induced rise, the outlook demonstrates that this mainly reflects resurgence in tax revenues. For the most part, government spending is still growing a little faster than output. While not an immoderate trend in the context of expanding economies, in some countries this is hindering attempts in the short term to rebuild fiscal buffers depleted in the wake of the global recession.
“From now and through the medium term countries have to try to rebuild the policy space they had that helped them respond so well to the global crisis. And so that requires reducing debt and putting in place policies to increase reserves, dealing with financial sector issues, all of that with the view to giving them the capacity to deal with future shocks. And it’s clear that they have been faced with a number of successive shocks and there will be more in the future, so it’s important to have the wherewithal to deal with those problems when they do come,” Sayeh said.
The report urges faster fiscal consolidation in low-income countries that are growing at close to potential and where government debt is already high. Here, fiscal policy needs to focus on medium-term considerations —debt sustainability, improving spending composition, and restoring fiscal space— and on finding room to help vulnerable households affected by higher food prices. Similar paths need to be followed in those middle-income countries where tax revenues are likely to remain constrained for an extended period.
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