The changing role of the IMF in Africa

Christine Lagarde recently visited Rwanda. In a speech delivered to parliament, the Managing Director of the International Monetary Fund (IMF) praised Rwanda’s home-grown initiatives and the country’s strong economic and social performance. In return, the host government acknowledged the contribution of IMF technical assistance to economic stability. The visit, however, provided a timely opportunity to reflect on the role of the Washington-based institution in Africa. The IMF has been strongly criticised in the past, with some crediting Africa’s poor socio-economic record during the 1980s and 1990s to the one-size-fits-all policy prescriptions embedded in structural adjustment programmes championed by the institution. In those two decades, sub-Saharan Africa’s GDP per capita declined by nearly 20 per cent in real terms, while progress in health and education stagnated or even reversed due to wide spread budget cuts. Arguably, the effects are still being felt today. A recent article published in The Lancet, a respected medical journal –linked past IMF policy conditionality to the weakness of health systems in West Africa, which in turn facilitated the spread of Ebola. Structural adjustment remains a contentious topic, but the IMF has since had a change of heart. Over the past decade, the IMF has gradually aligned its policy advice to the continent’s development narratives – rather than the other way around. It is Africa’s long-standing focus on infrastructure development, human resources, and regional integration that is pushing countries towards middle-income status. Macroeconomic stability has largely improved, although, in some cases , supported by unorthodox policy measures – such as exchanged rate interventions, capital controls, and counter-cyclical macroeconomic policies. Despite providing limited financial support, the IMF performs an important signalling role that can leverage additional resources. Its assessments of government policies greatly influence the decisions of Western donors and businesses. Nonetheless, this role is being gradually eroded by the emergence of non-traditional donors – who themselves adopted unconventional policies – and regional investors – who have a much deeper knowledge of African economies. The IMF will have to work hard to remain relevant in the continent. Last year, the African Union (AU) approved the creation of the African Monetary Fund (AMF) in line with its vision to establish Africa’s sovereign financial institutions to advance monetary integration – the others being the African Investment Bank and the African Central Bank. The AMF will be endowed with $22.6 billion to foster macroeconomic stability in the region by providing financial assistance to AU member states facing balances of payments problems. It will also oversee economic and financial policies and promote monetary cooperation by ensuring the convertibility of African currencies. This mandate clearly overlaps with the IMF’s three pillars of work: surveillance, technical assistance, and lending. The timing of the decision might be seen as a response to the slow pace of IMF reforms – especially on its internal governance – and the restrictive policy conditions attached to their lending programmes. The AMF will only become operational when the protocol is ratified by the parliaments of 15 countries, but how will the IMF position itself? Will it criticise (and oppose) the AMF as a needless duplication of efforts, or will it welcome (and support) it as a regional endeavour to strengthen financial and monetary surveillance and raise additional resources to tackle macroeconomic imbalances? The answer to that question will certainly define the future relationship between the IMF and African countries.Pedro Martins is an Economic Affairs Officer at the United Nations Economic Commission for Africa

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The changing role of the IMF in Africa