Roger Nord

Nord who was in Kigali to attend the just concluded international conference initiated by the Parliamentary Network on the World Bank and the IMF, explained that Rwanda and most sub-Sahara African countries have built, overtime, significant cushions such as low public debt and high foreign exchange reserves, to withstand this volatility.

He advises countries to make sure they maintain these cushions.

Nord, noted that when global growth slows down sharply, as during the global recession in 2008 and 2009, growth in Africa also fell but not very much.”

“If you have low public debt, then when the economy slows down, you can let the deficits grow larger, temporarily. And you can do so and you can easily finance them. And that was the case in 2008 and 2009,” Nord said.

“Rwanda is relatively well placed for that, and did that also in 2008/2009. Other cushions are foreign exchange reserves. Foreign exchange reserves for countries are quite high and that is good because when the world economy slows down, exports slow down and when remittances slow down, it is good to have a level of reserves”.

To deal with volatility and adversity in the world economy, the IMF official says countries need to have strong domestic buffers.

“I am relatively optimistic that if the world economy would slow down again today, sub-Saharan Africa is well positioned.”

Another reason for his optimism is that sub-Saharan Africa, unlike 20 years ago, does not depend on traditional trade partners – the US and Europe alone.

“Twenty years ago, or even ten years ago, 80 percent of African exports went to Europe and the United States. There’s been a huge shift in trade and investment flows reorienting towards new emerging markets. China is a big one but it’s not only china, it’s also India, it’s also Brazil,” Nord explained.

“And now, in 2010, 2011, more than 50 percent of African exports are going to new partners. And that has also helped be more resilient because you have spread your risks across more countries. And as we know, the emerging markets, at the moment, are the engines of global growth.”

Rwanda is seen to have enjoyed “remarkable progress” in the last 10 to 15 years, with an average growth rate of eight percent. In the same period, economic growth in sub-Saharan Africa has averaged between five and six percent.

Dmitry Gershenson, the IMF resident representative, explained that macroeconomic stability in Rwanda was the hallmark for the last 10 years.

The IMF has a policy support instrument (PSI), an arrangement that does not imply any financial assistance from the IMF because, according to Gershenson, Rwanda does not need money from the IMF.

“And just to give an example of how the successful policy implementation was put in practice, when in 2009 there was the global crisis and recession, there were enough cushions – slow debt, high reserves, much disciplined fiscal policy,” Gershenson said.

“It allowed the government to run an expansionary budget in 2009/10 to forestall the effects of the crisis from the US and Europe coming here and damaging the economy.”

By James Karuhanga, The New Times


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