IMF sees need for reform in economic recovery

Africa's economic growth will fall to 3.25 percent this year from an average 6 percent in the last couple of years, the IMF said on Tuesday, urging African states to agree reforms and to diversify to help recovery.

Experts say initial hopes the world's poorest continent would avoid the worst the credit crunch were premature, and that it will be hit by falling demand for commodities, less foreign investment, reduced remittances, tourism and taxes.

"There is a need to advance policy reforms even more than before because of the current situation," Benedicte Christensen, the International Monetary Fund's deputy director for Africa,said in an interview. "But the risk is also whether it is possible to have the consensus for it."

Christensen said oil producing countries and major commodity exporters like Zambia and Democratic Republic of Congo had seen growth fall quite sharply, but the Fund was predicting weaker growth across the board in Africa.

"On the fiscal side, we see deterioration in the fiscal balances by an average of 6 percent of GDP for countries in sub-Saharan Africa," she said on the sidelines of an African Union (AU) summit in Ethiopia.

"And on external current account deficits, we see a deterioration of 4 percent, so a little less, but still very significant. These orders of magnitude clearly suggest there will be a serious crisis hitting the continent."

The Fund's managing director, Dominique Strauss-Kahn, and the outgoing AU chairman, Tanzanian President Jakaya Kikwete, will co-host a conference of African leaders, finance officials and policymakers in Dar es Salaam, Tanzania, on March 10-11.

Christensen said the talks would provide a valuable chance for African governments to discuss how to deal with the economic downturn ahead of a G20 meeting in London in April.

"DEEPER REFORMS"

While many nations' budgets were already coming under increased pressure and hard-won gains in macro-economic stability were in danger of being unwound by the turmoil, Christensen said, the situation presented opportunities too.

"Perhaps it's time to try to forge consensus for deeper reforms, particularly for economic diversification, she said.

High food prices in recent months had shown the need to promote African agriculture, she added, and there was also the chance to lay a foundation for greater private sector activity on the continent by slashing obstacles to investment.

Speaking in Davos last week, British Prime Minister Gordon Brown called for the rebuilding of institutions like the IMF and World Bank that were created in the 1940s when the world's financial landscape was very different.

Christensen said the Fund had changed a lot in the last decade, but saw the need to continue to adapt its operations.

The IMF has set up committees, she said, including one led by South African Finance Minister Trevor Manuel, to study internal governance issues and how to enhance its legitimacy.

"There has been reforms going on ... and in a number of areas we are changing. Early warning signals that tended to focus on emerging markets are now also being focused on the advanced economies," she said. "We are also trying to develop our understanding of macro financial linkages, to better understand how the crisis will hit the real economy."

She said the Fund was currently reviewing how it worked with low income countries like those in sub-Saharan Africa: "In light of the needs we see right now, we'll see if there is a need for new facilities or further changes to existing ones."

By Daniel Wallis

Reuters