Sub-Saharan Africa IMFC statement warns against protectionist trends

3 July 2017

Free Trade and Protection Credit: By Library of the London School of Economics and Political Science, via Wikimedia Commons

In April Malusi Gigaba, South Africa’s finance minister, made an International Monetary and Financial Committee (IMFC, the direction-setting body of finance ministers for the IMF) statement, on behalf of 23 sub-Saharan African countries. His statement warned about the risks of “emerging protectionist trends” to an “already fragile global economy”, in which “the multilateral framework is being questioned by some groups and financial sector regulatory reforms risk being rolled back”. This contrasted with April’s IMFC communiqué, in which the IMFC set out the consensus position about the direction of the Fund. The communiqué presented an optimistic view of economic growth in developing countries, revealing the contrast between the two documents (Bretton Woods Project Spring meetings IMFC communique analysis 2017).

Gigaba’s statement highlighted that “for sub-Saharan Africa, growth continues to be hampered by adverse cyclical and supplyside factors” worsened by the “devastating impact on agricultural production” and “high inflation” following a “severe drought experienced mostly in Eastern and Southern Africa”. In order to support growth in sub-Saharan Africa, the statement highlighted the importance of adopting “the right policy mix in this environment”, including “through rebuilding buffers to adequately cushion economies against shocks”, and that a “stronger emphasis on structural reforms and diversification is warranted”.

Illicit financial flows and capital controls

Gigaba’s statement cautioned that despite current stable capital flows the threat of outflows “looms large”, warning that US “monetary normalisation [ie – higher interest rates]” and “price pressures” in larger economies may result in a reversal of flows away from developing economies. The statement further noted that while “maintaining free-floating exchange rates and liberalisation is an important policy goal” the “significant short-term balance sheet effects, amplified by the current supply-side inflation pressures, and are a threat to welfare gains and stability”. While the statement stressed that sub-Saharan African countries “support the Fund’s work on the institutional view on the management of capital flows” it stressed that “the Fund should ensure that measures adopted are tailored to meet country specifics” (see Observer Summer 2016 and Spring 2016).

a stronger emphasis on structural reforms and diversification is warrantedMalusi Gigaba, finance minister of South Africa

In February 2016 the IMF published a policy paper re-opening the discussion of the potential merits of the use of capital controls (see Observer Spring 2016). A June 2016 IMF article questioned the policy related to “removing restrictions on the movement of capital”, with the authors arguing that (i) growth benefits of these policies are not proven, (ii) these policies have “prominent” costs in terms of inequality and (iii) increasing inequality in turn diminishes the “level and sustainability of [economic] growth” (see Observer Summer 2016).

Gigaba’s statement reiterated its support “for developing strong mechanisms to help deal with illicit financial flows that have drained the region of much needed resources to finance development.” The statement further advised that “tighter financial sector regulation is an important tool to lower macro-economic risks” and also that “having effective taxation systems in place are essential to achieving stability”. The group called “on the Fund to provide more long-term capacity-building support and advice to strengthen domestic resource mobilization”, a point repeatedly raised by CSOs.

The statement took “positive note that the conceptual framework for macro-structural analysis includes issues of inequality and gender” and supported “the integration of macro-critical issues into the Fund’s work, including the impact of climate change, gender and various spillovers” (see Observer Summer 2017). Crystal Simeoni of African Women’s Development and Communication Network FEMNET highlighted “on illicit financial flows, the women’s rights movement is strongly pushing for progressive rather than just effective tax systems that ensure that taxes are collected fairly and distributed equitably in ways that ensure inclusivity for the women and girls of Africa.” She continued “it is not just about having tighter financial sector regulation, but it is a question of inclusion. Currently, the OECD is setting global rules for all of us even though we are not all at the table. We are pushing for a global tax body that is inclusive and ensures that all our voices are at the table.”

Governance, inclusion and diversity

The finance minister said that sub-Saharan countries “look forward to the completion of the ongoing work on strengthening the global financial safety net” (GFSN, see Bretton Woods Project Year in review 2016) and the “completion of the 15th General Review of Quotas, including the introduction of a new quota formula, by the 2019 Spring Meetings but no later than the 2019 Annual Meetings” (see Observer Winter 2016). It also reiterated their call “for a third chair for sub-Saharan Africa on the IMF Board”.

The statement stressed that “diversifying the staff” will enhance “the Fund’s effectiveness” and encouraged the Fund to “increase focus on both recruitment and retention of nationals from underrepresented regions to ensure the benchmarks are attained”, whilst reaffirming their “call to expand the pool of institutions to include universities in Africa and urg[ing] that this translates into actual hiring of African nationals”.  Simeoni commented “We agree with the call to the IMF to provide more technical assistance in banking, tax administration and measures to promote investment in infrastructure and job creation. However, we call for this to be done in an inclusive way that brings in the women’s rights movement and the priorities of the women and girls of Africa who have traditionally been sidelined from macroeconomic spaces at all levels.”