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Friday, 2 May 2014

Zambia's Homegrown Risks

The IMF has released its latest economic forecast for Africa [April 2014]. And it carries dire warnings for Zambia. Here is how the Financial Times reports on the same:
Sub-Saharan African countries face rising “homegrown” economic risks, the International Monetary Fund has warned, shifting the focus from the external factors that have hitherto worried investors.

The warning about domestic risks, including persistently high fiscal deficits and rising public debt, comes after a decade in which the IMF largely praised the economic policies in sub-Saharan Africa, the world’s second fastest growing region after developing Asia.

“The time to fix the roof is now,” Abebe Aemro Selassie, deputy head of the Africa department at the IMF, said in an interview. “Growth has recovered to pre-crisis levels, however the fiscal deficit stance is akin to the one that countries put in place during the crisis. We are cautioning of the need to revert to smaller deficits.”

In spite of the domestic risks and external headwinds, the IMF painted a relatively rosy short-term outlook, saying in its twice yearly review of the region that economic growth will accelerate this year to 5.4 per cent, up from 4.9 per cent in 2013. In its previous outlook, released in October, the IMF anticipated growth of 6 per cent in 2014.

“The region’s recent strong period of economic performance thus looks set to be sustained,” the Washington-based body said on Thursday. “The near-term outlook is expected to remain favourable.” it added.

After two decades of lacklustre development in the 1980s and 1990s, Africa started to grow strongly in the early 2000s. The virtuous circle of economic growth and improved governance – supported by high commodities prices – have heralded a new chapter for the continent, which many have enthusiastically called “Africa Rising”.

But after more than a decade of strong economic growth, the IMF is sounding somewhat more cautious. The multilateral institution warned that on top of external headwinds such slower economic growth in China, weaker commodities prices and the US Federal Reserve tapering programme, problems were mounting at home for Africa.

“More homegrown risks are also threatening growth prospects in several countries in the region,” the IMF said. “In a few cases policy missteps, such as large fiscal imbalances, threaten to undermine the hard-won macroeconomic gains of recent years,” it added, singling out Ghana and Zambia as sources of concern.

The IMF forecasts that fiscal deficits in sub-Saharan Africa, on average, will hit 3.3 per cent of the gross domestic product in 2014, a massive shift from a surplus of 2.5 per cent a decade ago.

Sub-Saharan African countries have benefited over the past three years from investors’ hunger for yield due to ultra-loose monetary policies in the US, Japan and Europe to finance their deficits. African governments last year raised a record $8bn in global sovereign bonds – including from several debuts –, up from $1bn a decade ago. The borrowing spree has lifted public debt, which the IMF said will hit a ten-year high of 35 per cent of the GDP in 2014.

“A number of countries...have undertaken excessive fiscal expansions...partly financed by foreign borrowing, thereby increasing their vulnerability to sudden capital flow reversals.”

Mr Selassie said the IMF was not sounding the alarm, at least not yet. “The region has been doing well – we are focusing on what is needed to sustain this 10-year long boom,” he said.

(Source: The Financial Times)

The key phrase throughout the report is HOME GROWN risks. That is a short way of saying that the problem are all to do with poor economic policies. All of these things of course I have already repeatedly said it. But may because it is coming from Washington it will carry more weight. They never listen to poor ordinary Zambians. We can warn them and warn them, it is no use. It is the colonial mindset.


AUTHOR Chola Mukanga | Economist
Copyright © Zambian Economist 2014

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