Most African governments should continue their development spending plans and draw down foreign exchange reserves to bolster their economies while global commodity prices fall, the International Monetary Fund said. Demand for African commodities has declined as the global economy has slowed, reducing export revenues and straining African balance of payments.
"They can weather a certain amount of the storm," Mark Plant, deputy director for African development at the IMF, told Reuters in an interview late on Friday. "They should use reserves to continue spending in key areas to make sure the demand in the economy from the government is a bit higher and it essentially props up the economy during the short term fluctuation," he said.
The IMF has projected growth in sub-Saharan Africa will slow to 3.3 percent this year, half of the 6.3 percent it forecast in October. The decline in growth in the regions oil-producing countries is expected to be sharper at 3.2 percent as oil prices have fallen sharply from highs around $147 a barrel. Plant said promising agricultural harvests had prevented the IMF from lowering 2009 projections further still.
He said if governments thought the drop in prices of a particular commodity they produced was temporary, they should dip into their reserves and continue spending in areas propping up their economies. If they thought the fall in prices was permanent, they should diversify production into other areas.
"It is difficult to know if this is permanent or temporary, so many governments are hedging their bets and doing a bit of both," Plant said. As well as increasing budget support to cushion reserves in troubled economies, the IMF recently established an emergency fund which Ethiopia and Senegal have already adopted. Democratic Republic of Congo is poised to request help too.
The "exogenous shocks facility" allows countries to access money on a short term basis without entering a formal IMF programme, Plant said. Plummeting petroleum prices have helped the majority of African countries that are oil importers, but are hitting exporters like Nigeria.
Plant said plentiful agricultural harvests across the continent would eventually push food prices down. "If the food price comes down it can be a mixed blessing depending on whether you are a food importer or a food exporter," he said.
Plant added that integrating economies like in the East African Community would enlarge markets, boost trade and increase specialisation but warned economic shocks would affect each country differently. "It will require close co-operation between the countries involved to make sure that when one country is hit particularly hard, the other countries help it," he said.
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