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

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.