Press Release No. 09/22

Press Release: IMF Deputy Managing Director Kato Visits Ethiopia and Discusses Global Economic Challenges with the African Union

February 3, 2009

Deputy Managing Director of the International Monetary Fund (IMF), Takatoshi Kato, attended the African Union (AU) Summit in Addis Ababa, Ethiopia, on February 1-3, 2009. Mr. Kato issued the following statement today at the conclusion of the Summit:

"I would like to thank President Jean Ping of the African Union Commission for his invitation to participate in the Summit. I had the privilege to meet Prime Minister Meles Zenawi of Ethiopia and other leaders. All leaders expressed a strong desire for the IMF to remain fully engaged in supporting their efforts to address the consequences of the global financial crisis and to help implement economic reforms and poverty-reduction programs in Africa.

"The global financial crisis presents tremendous challenges for Africa, notwithstanding laudable progress over the past 10 years to put in place sound and sustainable economic policies that have delivered robust growth and low inflation. The fruits of these efforts, which together with debt relief, have resulted in low levels of public debt, relatively sound financial systems, and a rise in living standards, are now at risk.

"The effects of the crisis are more significant than widely anticipated a few months ago, largely because the downturn in the advanced economies has been stronger than expected, commodity prices have dropped more sharply than anticipated, generalized external funding pressures have surfaced, and the risk appetite among foreign investors in Africa has deteriorated.

"By now, the impact of the crisis is felt all over Africa, though the main transmission channels vary. Africa needs to cope with the global slowdown in growth, which reduces demand for its exports of goods and services. Frontier and emerging market countries in the continent are especially affected through their more global financial links, including bond and equity markets. Commodity exporters are suffering a significant terms of trade loss. And fragile states, which are dependent on very concessional financing and are inherently in vulnerable social and political situations, are also at risk of being affected.

"The priority for Africa and for the international community needs to be preservation of the significant achievements in Africa over the past decade. Governments should not lose sight of their medium-term development goals. Contingency plans for the government budget should be put in place to deal with the possibility of a deepening of the financial crisis. The crisis is also a good opportunity to strengthen monitoring of the financial systems, and, more generally, countries should seize this opportunity to move ahead more quickly and decisively with macroeconomic and structural reforms to boost growth prospects.

"The IMF is committed more than ever to assist governments in the best possible way to adjust to the crisis and get back on track to achieve ambitious development goals. Ethiopia is a very good example of Fund engagement in Africa to deal with those challenges. The country was adversely affected by last year's sharp increase in international commodity prices. The global economic turmoil is likely to worsen the balance of payments and reduce economic growth.

"In my meeting with Prime Minister Meles, I commended the Ethiopian authorities for having adopted an appropriate macroeconomic policy package to address the challenges. The package includes domestic fuel price adjustments, substantial fiscal and monetary policy tightening, exchange rate adjustment, and, crucially, measures to protect vulnerable groups. Implementation of the policy package is expected to help ease the pressures on domestic prices and the balance of payments significantly. In support of this package, the IMF has recently approved a US$50 million concessional loan under the Exogenous Shocks Facility.

"The global financial crisis and its impact on Africa is also the key topic on the agenda of the high-level conference that President Jakaya Kikwete of Tanzania and the IMF will co-host in Dar es Salaam on March 10-11. Entitled "Changes—Successful Partnerships for Africa's Growth Challenges," the event will bring together policy makers, the private sector and civil society from all over Africa and beyond. Drawing on Africa's achievements over the past decade, the primary objective of the conference is to discuss how to ensure that the global financial crisis does not jeopardize Africa's hard-won gains. The IMF is ready to play its part in that effort."