Left to right: World Bank Africa Region Vice President Obiageli Ezekwesili, Uganda Central Bank Governor Emmanuel Tumasiime-Mutabile, Ali Mansoor, Secretary of Finance for Mauritius, Consolate Rusagara, director of Financial Systems for the World Bank.
African policy makers must find solutions for dealing with the global financial crisis
Regional solutions can help countries get through the crisis
The World Bank must continue to develop flexible lending instruments
WASHINGTON, April 24, 2009 -- Finance ministers and bankers from around Africa met Thursday ahead of the annual World Bank-International Monetary Fund Spring Meetings in Washington, D.C. to determine the way forward in dealing with the impact of the global financial crisis on African countries.
Hosted by the World Bank’s chief economist for Africa, Mr. Shanta Devarajan, and chaired by its vice president for Africa, Ms. Obiageli Ezekwesili, the meeting challenged participants to “think outside the box” in determining solutions to the negative economic, humanitarian and political effects the crisis already is having on the continent.
“The major challenge facing African countries and their development partners is how to design appropriate policies that would respond to this crisis,” Ezekwesili said.
She said sound macro-economic policies put forward by Africans over the last decade, which have, in part, led to significant growth rates, are now being questioned.
“What are the kinds of appropriate policies that countries should follow in a systematic crisis environment,” she said. Should African countries, for example, look to American and European-style policies as a way out?
Flexibility, Diversification, Regional Solutions Key to Combating Crisis
Uganda Central Bank Governor Emmanuel Tumasiime-Mutabile advised flexibility of markets, of regimes, and of policies in order to stem the force of the crisis.
He said while the crisis did not immediately affect Uganda, the credit crisis eventually would have and the ongoing economic crisis – through reduction in remittances, overseas investment, possible reductions in aid and lower export demand -- has. Policies, such as allowing Uganda’s exchange rate to depreciate, he said, have helped guard the country against significant shocks.
“We still believe that the flexibility of our policies has allowed us to protect the rate of growth in our economy,” he said.
The World Bank’s director for West African countries Ishac Diwan said governments now need to diversify and take advantage of alternate sectors as they look at their commodity exports. “What are the two or three products where coordination at the highest levels can become the agent of change and make the difference,” he said.
Zambia’s Minister of Finance Situmbeko Musokotwane, who participated in the seminar, used his country to bolster Diwan’s argument. “In Zambia, we are very much dependent on copper and the crisis has affected us mostly through the export of copper.”
According to Consolate Rusagara, director of Financial Systems for the World Bank, African policy makers “have tough choices to make”. For example, she said, inflation in African countries still is a problem and, in the face of the crisis, central banks should be trying to cut interest rates in order to spur lending. But, how do policy makers cut interest rates given high inflation. She urged the development of domestic capital markets, the implementation of regional monitoring and solutions, and said African banks must have contingency plans. “We cannot wait for the crisis to end before we look at banks,” she said.
Additional Financing Needed
The financial crisis is impacting African countries through a sharp fall in four revenue generating areas: private capital flows, remittances, foreign aid and commodity prices, according to the World Bank. In Niger, according to the country’s Minister of Finance Lamine Zeine, the crisis has had the largest impact on remittance flows and has led to a slow-down in investment, particularly in agriculture.
“We took certain fiscal measures in order to protect food staples,” he said, “but the crisis has affected the entire economy and unfortunately those measures were quite limited.”
Zeine called on the World Bank to assist his country and others in several ways: among others, to help attract counter-cyclical measures, to develop more flexiblelending instrumentsand to support countries in quickly implementing the recommendations of the recent G-20 Summit. If not done, he said, the great risk is that “many of the things that [African countries] have accomplished will be undermined or will disappear.”
Ali Mansoor, Secretary of Finance for Mauritius, urged adjustment in policies at the country level, but agreed with Zeine on the need for supplementary financing from international development agencies like the World Bank. “There needs to be additional, dedicated resources to help us through the crisis,” he said.
Areas of target, he said, should include: support to viable, private enterprises in order to save jobs, technical assistance to small- and medium-size enterprises, and accelerating the implementation of public infrastructure. He pointed to his own country, where flash floods in recent months, have led to a need for investment in better drainage systems.
The World Bank’s role, he said, should be in helping countries by providing technical assistance in the implementation of financing packages.
Thursday’s seminar led to a lively debate between the ministers, bankers and World Bank representatives. The seminar ended with a call from the World Bank’s Ezekwesili for countries to look to intra-African experiences and solutions as a means to ride out the crisis.