29 February 2012

East Africa: International Monetary Fund Warns of Global Economic Crisis

Arusha — THE Deputy Managing Director of International Monetary Fund, Mr Naoyoki Shinohara, who is currently in Arusha, has warned of economic crisis later this year.

Speaking during the East African Community's regional conference on the Integration of the Financial Sector, the IMF Director revealed that, there will be mild recession in 2012 driven by spillovers from high sovereign borrowing costs, slowing bank credit and tighter fiscal policies.

The crunch, according to Mr Shinohara, is set to affect the Eurozone between 2012 and 2013. It will later spread to other parts of the world, especially developing countries. "The global recovery is threatened by strains in the Euro area," stated Mr Shinohara.

He said economic growth will remain in the range of 1.0 to 2 per cent in 2012-2013.

Mr Shinohara, however, revealed that the EAC region was recording a strong macroeconomic track record. "Since 2005, an average per capita income growth in the EAC countries was 3.7 per cent, compared to 3.2 per cent for Sub-Saharan region as a whole and foreign direct investment in the five states more than doubled to US $ 1.7 billion over the past decade," said the IMF Director.

Mr Shinohara added that African economies are projected to grow at close to 5.5 per cent between 2012 and 2013, which is up from 5 per cent in 2011, making the continent one of the world's strongest growing regions in the next few years, after (Asia) China and India.

IMF predictions are coincidentally being tabled at a conference on EAC regional financial integration and the community's proposed monetary union is mapped along the European Union's model, a zone which is facing various economic crisis. On his part, Don of Oxford University, Prof Paul Collier warned that, borrowing a leaf from EU's monetary union wasn't exactly a good idea for EAC because this prototype, despite being made up of well-off countries, is facing major economic and regional problems.

Prof Collier also noted that removal of borders separating East African countries will see the cities located in Tanzania, Kenya, Uganda, Rwanda and Burundi grow for over 85 per cent of their current sizes. "East African cities have great potential to grow into massive urban centres and "big is beautiful," he stated when presenting a paper on "Emerging East Africa".

Organized by the Arusha-based EAC secretariat and sponsored by the International Monetary Fund (IMF) and the Canadian International Development Agency (CIDA), the conference has attracted over 100 delegates. The Oxford don pointed out that once the five member states do away with the colonial border, each of the existing urban centres, including towns and cities will automatically become specialized in certain areas of production and this will make them start trading with each other.

"And once the borders disappear and each city become specialised in one area of production, the rate of productivity in each of them is bound to increase by up to 6 per cent, as they attract more and more investments," added Prof Collier. The EAC Secretary General, Dr Richard Sezibera said there are ongoing definitive programmes at regional level, towards the promotion of capital market regime and institution.

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