Africa's economies in the downturn
Prudence can win
The IMF says some African countries can spend their way out of recession
WHEN demand collapses in an economy, the governments of rich countries can try to compensate by spending more of their own money. But poor countries have rarely risked such counter-cyclical fiscal expansion. Limited cash, and worries about debt, usually mean they must cut spending rather than increase it when times are tough and revenues dip.
This could change if the IMF has anything to do with it. Recent missions of the Fund to Tanzania and Mozambique have explicitly advocated fiscal stimuli. This is rather new for the IMF, which has rarely advocated loosening purse strings in poor countries. But its economists believe that some sub-Saharan Africa countries are better placed to implement fiscal expansion in this crisis than in previous ones.
This is not because government revenue is unaffected. Government finances in such countries as Angola, Botswana, Chad, Congo and Nigeria, which rely heavily on the export of commodities, are being pummelled. In general, budgetary targets in the region are increasingly not being met as economic activity slows.
Still, the IMF argues that declining revenue is less of a constraint now than before. Growth averaging 6.5% a year between 2004 and 2008, together with buoyant commodity prices, meant that African governments were flush with cash during the boom. But instead of overspending in good times, as they had historically tended to do, some, such as Tanzania and Mozambique, wisely built up their reserves. This may stand them in good stead now that times are tough. Debt relief has also helped: three-fifths of sub-Saharan African countries have what the IMF considers sustainable debt positions, adding to an argument for fiscal expansion.