IMF cautions in Africa vote-heavy year

Reuters News
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Posted: Apr 17, 2011 7:55 PM
IMF cautions in Africa vote-heavy year

By Lesley Wroughton

WASHINGTON (Reuters) - The International Monetary Fund is cautioning African countries to watch their spending during a year packed with elections in the region where rising food and fuel prices already pose a big threat to the poor.

This year is the busiest for the African political calendar since the end of the Cold War, with 17 presidential polls and even more parliamentary and local elections.

The hectic schedule is raising concerns that countries could throw fiscal caution aside to win votes and undermine years of economic progress, pumping up growth and possibly raising wages that would further fuel inflationary pressures.

"There are some hard decisions that governments will need to take this year and those are even harder in a political season, but we want to encourage countries to pursue reforms as much as they can," Antoinette Sayeh, IMF director for Africa, told Reuters during weekend meetings of global finance chiefs.

Djibouti, Chad, Seychelles, Cape Verde, Sao Tome and Principe, Uganda, Benin, Niger and Central African Republic are among African countries going to polls in 2011. Nigeria held a presidential election on Sunday.

In 2009, overspending by Ghana's former government in the run-up to elections forced the West African state to turn to the IMF for a $1 billion loan. Ghana faces presidential primaries in July before a vote in December 2012.

Pricier food is especially hard for Africa where many people spend most of their disposable income on staples and any shortages worsens hunger and malnutrition.

The World Bank says 44 million people have been pushed into extreme poverty around the world since June 2010 when food prices started rising due to bad weather and economic growth.

RESIST THE TEMPTATION

"It's important countries do as much as they can to protect the considerable gains they've made and to really endeavor to rebuild some of the buffers and to resist some of the clear political pressures and the temptation to expand budgetary spending," said Sayeh, a former Liberian finance minister.

The IMF expects growth in Sub-Saharan Africa of about 5.5. percent in 2011, more than double the rate of advanced economies. It would also be higher than other developing regions such as the Middle East and North Africa, Latin America, and Central and Eastern Europe.

Nigeria, Guinea, Angola, Sierra Leone, Sao Tome and Principe, Eritrea, Ethiopia, and Democratic Republic of Congo face double-digit inflation this year, according to the IMF.

Sayeh said if food and fuel prices remained at higher levels, they would increase inflation pressures in many countries. Rising international prices have, however, not yet made their way into all countries in Africa. Harvests in some countries have been good enough to fend off the immediate impact of higher international food prices, she said.

Sayeh said IMF data and analysis from the last food price crisis three years ago suggests it can take about six months before higher international prices push up domestic inflation.

"Our sense is that we may see further additional inflationary pressures manifesting themselves come this summer in some countries," Sayeh cautioned.

Higher oil prices have a major impact on poor nations because of their bearing on the cost of fertilizers and transporting produce to markets.

"We think it will be a significant shock for a number of countries, so a lot of the discussion we will have with our African member countries over the next few days is around these developments," Sayeh said.

To mitigate the impact of higher prices, governments should look if there is room for maneuver in their budgets to target assistance to the poorest households, she said, adding this was sometimes difficult because many countries lacked information or data to identify the very poor.

The second-best option for those countries, she added, was to lower taxes on food commodities, although she warned this was costly and would include households who do not necessarily need the help. She said governments should avoid generalized subsidies that cause harmful distortions in food markets.