THE International Monetary Fund (IMF), has advised African countries to maintain spending from their reserves through the current crisis period, to avoid a debt trap.
Nigeria has already fallen back on its reserve, which rose to 67 billion dollars last year, but dropped to 48 billion dollars in April, due to falling prices of oil and a wavering exchange rate.
The multilateral institution gave the advice in its April 2009 Regional Economic Outlook: Sub-Sahara Africa, at the 2009 Spring meetings of the IMF and World Bank.
Presenting the report, IMF Director of Africa Department, Ms Antoinette Sayeh said the global financial crisis had already taken a toll on government revenues, and stressed the need to stay within available fiscal space.
She declared: "If the increase in the fiscal deficit can be financed, countries that have achieved macro-economic stability and sustainable debt levels should maintain planned spending.
"A few countries also have scope for discretionary fiscal stimulus, such as additional social measures, to protect the poor. Commodity exporters that accumulated savings during the boom may be able to adjust gradually by drawing down reserves.”
She, however, said in countries with limited or no fiscal space, there might be no alternative to tightening fiscal policies in the near term.
Sayeh said an additional donor support for those countries would be needed to sail through the crisis, expected to start improving by the first half of 2010.
She stressed the need for African countries to ease monetary police where possible, and let the exchange rates adjust to the external environment.
The CBN had last year eased the exchange rate to protect the reserves, and insisted that foreign exchange would only be made available to individuals and businesses with legitimate transactions.
The exchange rate soared from N117 to a dollar in the last quarter of last year to N152 in April, with the parallel market hovering between N180 and N200.
Sayeh added, “the plunge in commodity prices, like the crude oil, should provide a disinflationary impulse, which might allow some countries to ease monetary policy.
"Where the terms of trade have deteriorated or capital flows are drying up, real exchange rates will have to depreciate.”
The IMF director also said there was a need to monitor financial institutions and be prepared to act promptly.
She said priorities might be reordered to emphasise short-term measures, such as intensified surveillance, to facilitate early detection of risks.
The short-term priorities, according to her, should not distract governments from recognising and responding to the need for longer-term reforms, to reinforce and diversify their financial systems.
Sayeh said the IMF revised its lending instruments to make them more flexible and was also working to double concessional lending to the low income countries in Africa.
`The Fund will also continue to provide policy advice and extensive technical assistance to strengthen economic policy making in African countries,” she added.
The News Agency of Nigeria (NAN) quotes the report as saying that “prospects for Africa deteriorated markedly as a result of the global financial crisis, with Sub-Saharan Africa’s growth projected at 1.5 per cent in 2009, before recovering just under four per cent in 2009.”
The sub-region, in the last ten years, had a growth rate of seven per cent, and had the hope of meeting some of the goals of the MDGs by 2015, before the crisis started in 2007.