Friday, October 10, 2008

How will the financial crisis impact Africa?

Africa is the poorest continent, so you might think it would be worst affected.

However, it is also the least integrated into the world financial system, so this may be it's salvation. At least that's what the IMF seems to be saying, as reported in the Daily Nation:
IMF expert Jorg Decressin said the major challenge facing African countries are high food prices and limited global supply of grains.

He said African countries that will face difficult times are those whose economies are highly integrated into global financial and capital markets.

The whole continent, he noted, will however mostly feel the pinch of weakening commodity prices that are a major component of foreign exchange earnings.

"The major challenge we see for Africa is dealing with high food prices which might jeopardise hard won macroeconomic gains and provision of vital social services," the official said.

He said growth in Africa will not weaken very much during the turmoil period that is forecast to begin a modest recovery in the second half of next year. Mr Decressin called on donors to continue supporting African countries during the hard times for their assistance is vital in supporting national budgets.

On the other hand, not everyone is so upbeat:

Reacting to the WEO report, Oxfam International said donors must not make overseas aid the first victim of the economic crisis. It said in a statement that developing countries need the necessary support to ride out any shock they face for the problem has been caused by rich countries and poor people must not pay the price.

"The 50 developing countries that have less than three months of fiscal reserves left because of the food and fuel crises are the very ones who are going to be worst hit by the financial crisis," its spokesperson Marita Hutjes said.

"This is a dangerous cocktail for them to swallow," she noted in the statement. The agency said there have been increases in public sector spending on health and education in poor countries recently.

"Any IMF or World Bank response to the financial crisis must not eat into this progress, meaning children not going to school," it warned.

... the problem has been caused by rich countries and poor people must not pay the price. There can be no doubt who is responsible for this mess, and Africans should not be the victims.

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