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Temper expansionary policy, IMF tells Africa

By on October 25, 2010

Sub-Sahara African countries should consider tempering expansionary policy now that economic recovery is under way across much of the continent, the International Monetary Fund said on Monday.

Earlier this month, the IMF downgraded its 2011 gross domestic product (GDP) growth forecast for the region to 5.5 percent from 5.9 percent previously, but maintained its 5.0 percent prediction for this year.

“The focus of policy needs to shift toward rebuilding the policy buffers that served so well during the crisis,” Antoinette Monsio Sayeh, IMF’s director of the African department, said in a statement.

“In particular, expansionary fiscal policies will need to be tempered to make sure that public finances return to a sustainable path and public debt levels remain manageable.”

The region’s economies proved resilient largely due to sound policies in place before and during the financial crisis, which allowed the countries to use fiscal and monetary policy to dampen adverse effects, Sayeh said.

Many African countries had steady growth, low inflation, sustainable fiscal balances and public debt, and rising foreign exchange reserves.

Some countries cut interest rates, and increased debt and spending levels to mitigate against the effects of the crisis.

“Continued fiscal support is likely warranted only in a handful of economies where growth is set to remain below potential and which do not face debt sustainability issues,” the IMF said in its regional economic outlook.

Growth should soon be back close to the high levels seen in the mid-2000s before the crisis, Sayeh said.

The financial crisis left higher unemployment in some of the countries and fiscal balances deteriorated, particularly in middle-income and oil exporting countries, Sayeh said.

“And because of the fragile nature of the global recovery, risks remain weighted on the downside,” she warned.

However, rising incomes and investment will keep lifting domestic demand for the remainder of 2010 and the resource-hungry Asian economies are expected to maintain their demand for African exports, the IMF said.

Reuters.

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