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Wednesday, 2 July 2008

Food and Fuel Price Shocks

A new IMF staff note discusses the implications of the price shocks for the balance of payments of low-income countries in sub-Saharan Africa, with special focus on the countries in red, who are especially "hard-hit" and consequently face a pressing need for additional IMF balance of payments and budget support. The IMF criterion is that the trade balance impact of the 2008 food and fuel price has to exceed more than 50% of international reserves (a separate alternative criterion is applied to countries in the WAEMU and CEMAC currency zones, for which the reserves-based indicator is less meaningful). For this reason Zambia is not among the "hard hit", despite the negative impact on BOP being -2.9% of GDP. Three SADC countries fall within the criteria - Malawi , DRC and Zimbabwe.

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