IMF warns Africa on financial shocks
The International Monetary Fund warned sub-Saharan Africa's
rapidly growing economies on Thursday that they need to do more to protect
themselves against financial shocks.
In a sign of the continent's growing role in global
financial markets, the IMF urged governments to mitigate the impact of cash
rapidly flowing in and out of their economies.
Many African countries have benefited enormously in recent
years from investors moving cash out of moribund developed markets in search of
higher yields.
According to IMF data, net private flows to sub-Saharan
Africa between 2010 and 2012 were double the levels seen in 2000 to 2007.
In 2012 alone portfolio and cross-border bank flows to the
fastest growing markets in the region passed $17 billion, with Ghana, Nigeria,
and Zambia the main beneficiaries.
Country after country has sought to tap bond markets for
relatively cheap loans.
But a possible economic slowdown in China and an end to US
Federal Reserve stimulus is beginning to make investors more cautious.
In some countries, like South Africa, that has caused a
large depreciation in the local currency, pushing up import prices and fuelling
inflation.
More broadly the IMF said the impact of these trends had so
far been "muted" but it warned "if the global turmoil persists,
risks of contagion and possible reversals may increase. As frontier economies
in the region become more integrated with global financial markets, they will
also become increasingly vulnerable to global financial shocks."
The IMF predicted weaker-than-expected growth of five
percent in 2013 thanks to a "more adverse external environment."
It specifically cited "rising financing costs, less
dynamic emerging markets, and less favourable commodity prices."
It recommended better monitoring of capital flows and
develop tools to limit the impact of surges or reversals in investment.
The IMF also warned that a slowdown in major markets like
China could hit commodity prices, with a devastating impact on revenue for many
African governments.
The fund however predicted a modest bump in growth in 2014,
forecasting six percent expansion for the region.
Despite a variety of headwinds, "sub-Saharan Africa's
economies have generally maintained a strong pace," said Antoinette Sayeh,
director of the IMF's Africa department during the launch of the report in
Lagos.
"This is a reflection of continued sound macroeconomic
policies as well as robust domestic demand, in particular investment in
infrastructure and productive capacity," she added.
Particularly strong growth is expected in mineral exporting
countries, like Ivory Coast, DR Congo, Mozambique, Rwanda and Sierra Leone as
well as in Nigeria, the continent's second biggest economy and top oil
producer.
Nigerian financial analyst Bismarck Rewane welcomed the
IMF's forecast of 7.4 percent growth in 2014.
But he said that increases in GDP must not overshadow the
discouraging aspects of Nigeria's economy, including worsening income
inequality, rising poverty and a spike in unproductive political spending ahead
of general elections in 2015.
The deputy governor of Nigeria's Central Bank, Sarah Alade,
said the country could surpass the IMF's growth estimates if ongoing reforms in
agriculture and power as well as efforts to tackle the security challenges in
the north were successful.
Nigeria is fighting a four-year insurgency by the Islamist
group Boko Haram, which has claimed thousands of lives.
Analysts and Western diplomats say the conflict has scared
off investors and curbed development.
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