Press Release No. No 11/141

Press Release: African Consultative Group Meeting: Statement by the Chairman of the African Caucus and the Managing Director of the IMF

April 17, 2011

“Both international food and fuel prices have increased sharply in recent months. Global food prices are already above their 2008 peak and average oil prices are projected to be higher in 2011 than in 2008. So far, the effect of higher international food prices on domestic prices in Africa has been modest in most countries, thanks to good harvests in many parts of Africa. However inflation, while still low, has started to rise, and price pressures could intensify in the coming months.

“We agreed that countries should stand ready to respond to these shocks. With limited resources, prioritization will be important. We agreed that, for food prices in particular, targeted measures are the preferred approach to support the most vulnerable groups. These could include temporary price subsidies for items consumed by these groups, conditional cash transfers, or the direct provision of food, for example at schools. We also agreed that generalized fuel price subsidies should be avoided, as the benefits from these subsidies accrue mostly to higher-income groups, encourage excessive consumption, and are very costly fiscally. Where fiscal space is particularly limited, policies may need to include further revenue mobilization and a reprioritization of expenditure. While monetary policy should accommodate the immediate impact of higher international food and fuel prices, central banks should seek to prevent a more persistent impact on domestic inflation, in conjunction with prudent public wage policies. As price controls exacerbate scarcity and export bans reduce incentives for domestic producers, these measures should be avoided.

“The Managing Director recognized that rising international oil and food prices pose a significant challenge to African countries. He noted that there is a shared view on the proper policy response to this challenge, and added that where such shocks have a significant impact on the balance of payments, appropriate domestic policies could warrant increased financial support by the IMF.”