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African economic policies and the global crisis: Orthodox responses to a heterodox shock?

Shanta Devarajan's picture

When the global economic crisis hit Africa, I worried (along with others) that the continent’s economic reforms would be stalled or reversed.  Political support for these reforms may be undermined as economic growth slowed.  Furthermore, the response of high-income countries in response to the crisis—large fiscal deficits and greater government participation in the banking sector—was in the opposite direction of the reforms that African countries had been pursuing in the past decade.

In fact, the response of African governments has been largely to maintain, and in some cases accelerate, their reform programs: 

- Zambia, for instance, is running a modest fiscal deficit (2.6 percent of GDP) while maintaining the medium-term expenditure program it had established before the crisis. 

- Tanzania’s emergency program includes government support to the banking sector that is strictly time-bound, something that the U.S. program lacks. 

- The Democratic Republic of Congo used an emergency credit from the World Bank to finance infrastructure maintenance and teachers salaries. 

- Nigeria is planning to deregulate its downstream petroleum sector, which will generate substantial savings from reduced subsidies.

The reasons for these responses are many.  First, in low-income countries, a large fiscal stimulus can have impact only if it is financed with additional external resources and with the exception of “front-loading” of already-committed aid, these additional resources have been lacking during the crisis. 

Second, many countries don’t have well-functioning safety net programs that can be scaled up easily.  Third, it could be that the economic reforms that generated growth and reduced poverty in the decade prior to the crisis are precisely what are needed to preserve growth and protect the poor during the crisis.

Whether African governments’ responses were appropriate will be debated for some time.  To nourish that debate, the African Economic Research Consortium is organizing a conference on “Rethinking African Economic Policy in Light of the Global Economic and Financial Crisis.”  I look forward to a lively discussion on this blog and at the conference.

Comments

Submitted by Marieta on
The current financial crisis presents a real need to challenge ourselves and to rethink the way we do things. We need to draw on the widest range of talent. We need to came up with the best solution to lighten the effect of global financial crisis. Every country try there best and even the least to fully recover the economy from hitting to its bottom. Hopefully whatever the African government may have it will soon be realized and help to alleviate the crisis that they had been going through. The health care costs that are indicated to be wasteful are behavioral, clinical, and procedural – what that means is that behavioral patterns could be addressed by someone other than a doctor, clinics order unnecessary tests, and health insurance companies might be padding their bills. The biggest cause of people needing an extra cash advance for medical care is overtesting – unnecessary procedures so the physician can cover himself legally, or just gouge patients for cash. Doctors padding bills – no wonder health care costs drive people to needing a personal loan for a simple check up. For more info visit: http://personalmoneystore.com/moneyblog/2009/08/08/facebook-sells-set-network/

Submitted by Simon on
Thanks for this post. Isn't it possible that Africa's response had to be different because it hardly had the same levels of investment banking investments, stock trading, and mortgage industries that befell the industiralized world? One could argue that the main effect on Africa due to the crisis has mainly been felt with remittances, which go to private individuals. Government options in many African countries are largley dependent on the international financing institutions. Government tax revenues porbably did not get hit much because most taxes are raised from a few middle class working class individuals whose jobs were not so linked to the financial crisis in the West.

Submitted by Ole Turana on
THe biggest challenge facing African countries is the extractive nature of our production. With little or no value addition, any sharp drop in the prices of commodities is bound to have a major effect on the African government budgets and foreign exchange revenue. THe need to add value to what is mined is critical. Imter-regional trade needto be promoted to ensure such happenstance way out of Africa does not constitute a major setback on the economies of Africa. By removing trade barriers among the African nations, trade can be boosted allowing for stronger economies less dependent on the western market.

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