Source: Bad times send African borrowers back to IMF | The Financial Gazette June 2, 2016
ZIMBABWE stands ready to print its own version of the United States dollar and to sell wildlife from its game reserves to raise cash. But the real sign of its desperation is to be found elsewhere. It is calling in the International Monetary Fund (IMF).
Across Africa, countries that, until recently, had little use for the IMF as a lender of last resort are swallowing their pride.
Angola, whose leaders squandered billions of dollars during the go-go years of sky-high oil prices, is the latest to take the IMF shilling.
Ghana signed an agreement with the fund last year after successive governments went on election-driven spending sprees. Zambia, its economy crippled by low copper prices, is negotiating a similar deal.
Zimbabwe is a slightly different case. After 15 years of isolation, President Robert Mugabe’s administration wants to mend ties with the west by settling US$1,8 billion in arrears to the IMF, World Bank and African Development Bank.
Beijing proved less eager to bankroll Mugabe than he would have liked. If Harare settles its arrears, it will be eligible for new lending, but the IMF’s country chief warned there would be no free lunch. “Economic conditions are dramatic and economic reforms need to take place now,” he said.
It is all so 1980s. Back then, as a condition of emergency lending, the fund demanded a series of cookie-cutter free-market “reforms” known collectively as the Washington Consensus.
Its structural adjustment programmes, or SAPs in the dreaded jargon, imposed deep cuts on public services and insisted on privatisation as well as trade and financial liberalisation.
Many blamed such policies for destroying already threadbare state provision of schools and hospitals, police and security. Fela Kuti, the late, great and never mealy-mouthed Nigerian musician, sang that SAP spelt “Suck African People” (“Suck dem dry”). His version of what IMF stood for is not printable.
In the 1990s, many African governments improved their economic management. They reined in deficits, curbed inflation and, in some cases, stole less money. By the turn of the century, many African economies were in much better shape. China pumped in billions of dollars, often in return for oil, copper and iron ore.
Cheap Chinese goods also came flooding in, and while these wrecked local industries, from Nigerian textile manufacturers to Ghanaian shoemakers, they vastly increased the spending power of ordinary Africans. A consuming class, however fragile, emerged.
There were other positive developments. Western donors forgave the bulk of African debts. For the first time, several countries borrowed from commercial lenders. Commodity exporters from Angola to Zambia raked in money. Amid such plenty, the IMF, with its demands for “good governance” and fiscal restraint, became less relevant.
Mozambique’s fallout from the credit boom
A general view of eight speedboats, belonging to Mozambican state company Proindicus are seen on quay at the Maputo Harbour in Maputo, on April 22, 2016. On April 26, 2016, Mozambique said most of US$1,4 billion in previously hidden loans had been used to fund maritime security and shipyards, a week after the IMF suspended the country over the undisclosed sum.
Tuna bonds expose irresponsible side of recent lending
Now more difficult times have returned. Commodity prices have slumped. Capital markets are in less generous mood. Drought has hit several countries in southern Africa. In the good times, some African governments returned to bad old ways.
Mozambique recently revealed that it had racked up US$1,4 billion in previously undisclosed borrowing. Money raised for a tuna fleet had been lavished on the navy.
Mozambique is extreme, but not alone. According to the McKinsey Global Institute, the continent (including north Africa) ran a weighted average budget deficit of 6,9 percent of gross domestic product in 2015, more than double the 3,3 percent of 2010. In that year, Africa was running a 0,4 percent current account surplus. By 2015 it had slipped to a 6,7 percent deficit.
It is at such times that governments turn to the IMF. Fortunately, things may not be so desperate this time. Imperfect though many African governments remain, by and large their economies are better managed. With a bit of luck, most will avoid outright default. “There’s been a significant improvement in the macroeconomic policy landscape in most cases,” says Abebe Aemro Selassie, deputy director of the IMF’s African department.
Outside Nigeria, where President Muhammadu Buhari retains a visceral hatred for the fund, there is also less stigma about turning to the IMF.
That is partly because it is no longer so hell-bent on pushing neoliberal medicine down recipients’ throats and is more careful to protect health, education and poverty alleviation programmes.
Razia Khan, economist for Africa at Standard Chartered Bank, says both donor and recipients have moved cautiously towards the same page. When someone shouts “Call for the IMF” it is not a sign that things are going well. But it is no longer a death knell. – FT.com