African Development Bank's Response to the Global Financial Crisis

Article excerpt

Africa has made steady progress over the last decade and achieved major milestones, including recording over 5% economic growth on average in the last five years. This positive trend is now being undermined by the global financial crisis. The continent was already turning the corner buoyed by the improving global and local business environment, and was set to join the ranks of emerging economies. Given the current situation, the possibility of most African countries meeting the Millennium Development Goals (MDGs) by 2015 now seems remote. However, the progress achieved so far should not be allowed to wither away. Africa must find innovative and sustainable ways of responding to the crisis.

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Impact of the Crisis on African Economies

The financial crisis has resulted in the closure of firms, mines, job losses, decline in fiscal revenues, and put livelihoods in jeopardy. For the first time in a decade, Africa is on the verge of recording a zero per capita growth. Real GDP growth rate is forecast to fall below 3% in 2009 (2.8%) for the first time since 2002. The slowdown in growth is primarily due to declining trade flows. As a result, from a comfortable overall current account surplus of 2.7% of GDP for both 2008 and 2007, the continent will record an overall deficit of 4.3% Of GDP in 2009.

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Due to declining fiscal revenues, overall budget imbalances will worsen for the continent as a whole, dropping from 2.8% of GDP surplus in 2008 to a deficit of 5.4% of GDP in 2009. Private capital inflows are also declining, while most countries are recording reduced migrant remittances as a result of the weakening economies in the West, and in Africa's performing economies. African stock markets have taken a direct hit. Currency exchange rates are falling and foreign exchange reserves are shrinking. …