UPDATE 1-Temper expansionary fiscal policy, IMF tells Africa

* Economies resilient on the back of good policies

* Delayed effect from global recession unlikely

* Capital flows to increase, may affect rate management

(Adds details, quotes)

By Helen Nyambura-Mwaura

NAIROBI, Oct 25 (BestGrowthStock) – Sub-Sahara African countries
should consider tempering expansionary fiscal policy now that
economic recovery is under way across much of the continent, the
International Monetary Fund said on Monday.

Earlier this month, the IMF downgraded its 2011 gross
domestic product (GDP) growth forecast for the region to 5.5
percent from 5.9 percent previously, but maintained its 5.0
percent prediction for this year.

“The focus of policy needs to shift toward rebuilding the
policy buffers that served so well during the crisis,”
Antoinette Monsio Sayeh, IMF’s director of the African
department, said in a statement.

“In particular, expansionary fiscal policies will need to be
tempered to make sure that public finances return to a
sustainable path and public debt levels remain manageable.”

The region’s economies proved resilient largely due to sound
policies in place before and during the financial crisis, which
allowed the countries to use fiscal and monetary policy to
dampen adverse effects, Sayeh said.

Many African countries had steady growth, low inflation,
sustainable fiscal balances and public debt, and rising foreign
exchange reserves.

Some countries cut interest rates, and increased debt and
spending levels to mitigate the effects of the crisis.

“Continued fiscal support is likely warranted only in a
handful of economies where growth is set to remain below
potential and which do not face debt sustainability issues,” the
IMF said in its regional economic outlook.

Growth should soon be back close to the high levels seen in
the mid-2000s before the crisis, Sayeh said.

Growth heading into the crisis was 6.0-6.5 percent for
sub-Saharan Africa over the period 2004-2008, and slipped to
2.25 in 2009, the IMF said.

CAPITAL FLOWS

The financial crisis left higher unemployment in some
countries and fiscal balances deteriorated, particularly in
middle-income and oil-exporting countries, Sayeh said.

South Africa, for example, lost one million jobs in 2009
when the economy fell into recession.

The IMF warned that because of the fragile nature of the
global recovery, risks remain weighted on the downside.

However, rising incomes and investment will keep lifting
domestic demand for the remainder of 2010 and the
resource-hungry Asian economies are expected to maintain their
demand for African exports, the IMF said.

“The risks on the downside are slightly larger than the
risks on the upside,” said Roger Nord, a senior adviser for the
IMF’s Africa department, referring to the global economy.

“That being said, we see the risk of sliding back into
global recession of being very, very small and the reason for
that is the strong growth in emerging countries where we expect
(2010) growth on average to exceed 7 percent.”

Nord also said a $13 billion Chinese loan to Ghana is good
for the country’s economy and that African countries would face
challenges in using their growing capital inflows productively
[ID:nLDE69O0L0] as well as in managing monetary policy.

Other factors that will affect the region’s performance are
the shift in the source of growth from advanced economies to
developing Asia and Latin America emerging countries, and the
effect on possible aid reduction to the continent.

The quick rebound in growth led by private consumption and
investment was not temporary, the IMF said.

“We are fairly confident there is not going to be a delayed
effect of the glboal financial cirsis on the region,” said Abebe
Selassie, the regional studies head for the African department.
(Editing by Stephen Nisbet)

UPDATE 1-Temper expansionary fiscal policy, IMF tells Africa