By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The African Caucus and world lender, the International Monetary Fund (IMF) said on Sunday the declining oil prices—while beneficial for the Africa’s oil importing countries—pose significant challenges for the continent’s oil exporting economies, and will require prompt fiscal adjustment in those countries, as well as greater exchange rate flexibility where feasible.
This is coming on the heels the African Consultative Group Meeting co-chaired by Armando Manuel, chairman of the African Caucus, and Christine Lagarde, managing director (MD) of the IMF.
“We noted that the declining oil prices—while beneficial for the continent’s oil importing countries—pose significant challenges for Africa’s oil exporting economies, and will require prompt fiscal adjustment in those countries, as well as greater exchange rate flexibility where feasible,” a statement from IMF said.
Both the African Caucus and IMF noted that Africa’s economic outlook remains promising, with economic activity projected to increase at an annual rate of just over four (4) percent in 2015 in an environment of continued moderate inflation.
According to both bodies, a key downside risk to the continents outlook is the unwinding of unconventional monetary policies, and the potential impact this may have on borrowing costs.
The African Caucus and IMF advised that African countries should continue with their efforts to preserve macroeconomic stability and build resilience. “For most countries, finding the right balance between strengthening reserve positions, raising private and public investment, and ensuring appropriate levels of social spending will be critical in the period ahead, while for some countries it will also be important to strengthen their fiscal positions and contain debt accumulation,” the African Caucus and IMF affirmed.
Manuel on his part noted that sub-Saharan Africa has so far sustained a healthy growth rate. “We wish to take this opportunity to thank the IMF for its invaluable assistance in helping the countries affected by Ebola to contain this crisis and urge continued close engagement of the international community in supporting the rebuilding process,” he said.
According to the chairman of the African Caucus, tn the near term, Africa is suffering from the decline in commodity prices, and remains vulnerable to a further slowdown in emerging economies, particularly China.
He advised African oil exporters to recognise the need for prompt fiscal adjustment, while Africa’s oil importers intend to take this opportunity to reduce costly energy subsidies and create the fiscal space to support their development objectives.
Manuel disclosed that access to funding could become more challenging as the United States unwinds its unconventional monetary policy. “In this context, African countries look to the Fund to continue its effective engagement with Africa. Going forward, as we seek to achieve the Sustainable Development Goals, we agreed that it will be important for governments to maintain macroeconomic stability, strengthen institutions and the business environment, address critical infrastructure gaps, expand access to financial services in our economies, and seek to ensure that growth is both broad-based and inclusive,” the chairman of African Caucus added.
While Lagarde promised that the global financial institution would remain closely engaged with its African members, supporting them with financial resources and technical advice as needed. “In particular, we will continue devoting resources to assist North African countries in transition and fragile states to ensure economic stability and build resilience. At the same time, the Fund will continue to strengthen the analytical underpinnings of its policy advice and instruments, and seek to adapt its policies to the evolving needs of the membership,” the IMF MD affirmed.
