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financial crisis

Right analysis, wrong conclusion?

Shanta Devarajan's picture

During my recent seminar in Geneva, where I was also meeting with the Africa Progress Panel, a couple of members of the audience (which consisted of ambassadors, U.N. staff, civil society and academics) said, “I liked your analysis, but not your conclusions.” 

The seminar summarized many of the points I have been making on this blog:

  • For the decade before 2008, Africa was experiencing sustained and widespread economic growth, thanks to aid, debt relief, private capital flows, high primary commodity prices, and improved macroeconomic policies
  • Despite being the least integrated region, Africa was perhaps the worst hit by the global crisis
  • Contrary to some people’s fears, African governments continued to pursue prudent economic policies during the crisis—even though the visible payoffs to these policies (growth and poverty reduction) had suddenly diminished
  • Conclusion:  Economic policy in Africa, which had been improving before the crisis, and either stayed on course or improved during the crisis, has never been better.

    Since my conclusion followed directly from the analysis, I had three possible explanations for the reaction mentioned above:

Hard Choices in Botswana

Zeinab Partow's picture

Despite being pummeled by the global crisis--diamond production and exports contracted by 50 percent in 2009--Botswana was in the enviable position of being able to cushion its people and the economy, thanks to large savings accumulated over the years and access to inexpensive financing. 

But it may have overdone the cushioning.  The fiscal deficit for the 2009/10 budget year is projected at 14 percent of GDP.

Although diamond prices are expected to rebound, production and exports will remain below pre-crisis levels, and another double-digit deficit is expected in 2010/11.  Not even Botswana can maintain double-digit deficits for long without jeopardizing its fiscal sustainability, especially given the specter of a rapid fall in diamond production--and eventual depletion of known reserves--in a few decades. 

At the same time, cutting spending is particularly painful in a country like Botswana where government expenditures are pivotal to economic activity and to sustaining non-mining private sector.

 Some tough choices ahead for one of Africa's best-managed economies.

Impact of the Global Financial Crisis

Shanta Devarajan's picture

Not a day passes without somebody asking me about the impact of the global financial crisis on Africa's poverty reduction efforts. So I thought I would share this interview I recently did for Deutsche Welle radio.

I have also written extensively about what the crisis may mean for Africa on this blog. You can see those entries here.

Infant mortality rates in Africa will increase by 30,000-50,000 - Girls will fare worse

Norbert Schady's picture

The impact of the global financial crisis on infant mortality is a topic of great policy importance. However, estimates of the likely impacts of the crisis, cited by international institutions and in the popular press, differ wildly.

This blogpost summarizes the main conclusions from some of my own recent research on this topic, jointly with various colleagues.

These conclusions include:

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

Education and Finance in Africa

Shanta Devarajan's picture

At a recent conference that brought together African Finance and Education ministers, the keynote speaker, Tharman Shanmugaratnam, finance minister (and former education minister) of Singapore gave a beautiful speech about Singapore's experience that contained some potentially difficult and controversial messages for Africa.

A South African puzzle

Sandeep Mahajan's picture

In recent months, the external sector in South Africa has strengthened in ways that are somewhat perplexing. The strengthening has partly to do with weak import demand due to the economic slowdown.  But the surprising aspect has been sustained inflows of foreign portfolio investment in South African domestic securities.  Just as the news on the real sector and fiscal balances has gotten worse, somewhat paradoxically foreign investors’ appetite for South African securities has grown.

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