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2010:Recovery from the Global Crisis: Implications for SADC and Development Finance

2010:Recovery from the Global Crisis: Implications for SADC and Development Finance






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    2010:Recovery from the Global Crisis: Implications for SADC and Development Finance 2010:Recovery from the Global Crisis: Implications for SADC and Development Finance Presentation Transcript

    • Recovery from the Global Crisis: Implications for SADC and Development Finance Keith Jefferis May 2010
    • Remember early 2009 ….
      • World Economy
      • Financial crisis
      • Freezing of credit markets
      • Sudden plunge into deep recession
      • Collapsing commodity prices
      • Concern about prolonged depression
      • Rising unemployment
      • Bank rescues and fiscal injections
      • SADC/SSA
      • No financial crisis, but concern about knock-on effects of global crisis, via
        • Trade
        • Capital/financial flows
        • Risk aversion
      • Macroeconomic concerns
        • Growth slowdown
        • BoP
        • Fiscal problems
        • Poverty
    • Global growth slowdown ... and recovery
      • Depths of recession – 4Q2008 and 1Q2009
      • Recession was deep, but recovery has been robust
      • Fears of prolonged depression not realise
      • Global growth projected to settle in 3% - 4% range in 2010-11
    • Emerging markets leading the recovery
      • Recovery has been driven by emerging markets
        • Faster emergence from recession
        • Higher growth during recovery
      • Less affected by financial crisis and debt problems – more resilience
      • Developed economies – sluggish recovery:
        • Fiscal/debt problems
        • Unemployment
        • Euro-zone crisis
    • South Africa lagging other EMs, but recovering
      • South Africa’s recession has been comparable in depth to Emerging Markets generally, but:
        • SA lagging general EM recovery
        • SA growth expected to be reasonably robust in 2010, due partly to World Cup effect
        • Growth projected to weaken going into 2011
    • Signs of recovery ... minerals prices
      • Copper
      • Nickel
    • … and oil prices
    • Economic Developments in Sub-Saharan Africa
    • SSA Economic Outturn
      • Greater resilience than expected
        • Growth slowdown relatively modest
        • Quick recovery expected
        • Macroeconomic stress manageable
      • Greater impact on middle income countries, more integrated into global markets
      Source: IMF REO SSA April 2010
    • Why such a modest economic impact on SSA?
      • International
      • Quick and robust global recovery in growth, trade & commodity prices
      • SSA growth slowdown driven by reduced demand, not banking crises
      • Emerging market growth -> commodity prices
      • Recovery in financial flows
      • Domestic
      • Prior reforms and restructuring -> many countries started from strong macroeconomic position
      • Prior fiscal reforms enabled fiscal stimulus
      • Appropriate monetary policy response – inflation not a major concern
      • Resilient financial systems
      • Contrast with previous crises
    • Finance & Capital Markets
      • Central to economic problems in developed markets – and transmission of those problems around the world
        • Credit crunch
        • Risk aversion
        • Market collapses
      • Impact short-lived
        • Only small decline in remittance inflows
        • Development assistance: overall flows held up, especially with boost from MFIs
        • Recovery of risk appetite
        • Resurgence of portfolio flows to EMs – low returns in major markets
        • SSA role of FDI – less volatile than short-term flows
    • But of course there are problems…
      • Fiscal & Debt conditions
        • Limited fiscal space
        • Needs to be carefully managed
      • Partial but not full recovery in global demand
        • Well below trend
      • Employment & Incomes
        • Rising unemployment
        • Household income squeeze
      • Poverty alleviation/MDGs
        • Setbacks/delayed achievement
      • Fragile states
        • Especially vulnerable
    • Economic Outlook - SADC
    • Inflation: much reduced, not a major concern, allows monetary policy easing Source: IMF REO for SSA (April 2010) 46%
    • Real GDP growth – recession mostly avoided in 2009, strong recovery projected for 2010 Source: IMF Regional Economic Outlook, April 2010
    • Fiscal balance: some large deficits, esp. in SACU, but generally manageable
    • Current account: some large deficits, and dependence on capital inflows Source: IMF Regional Economic Outlook, April 2010
    • Reserves: some declines, but still comfortable in most countries Source: IMF Regional Economic Outlook, April 2010
    • Outlook & risks – world economy
      • More positive than a year ago
        • Worst fears of depression appear not to be realised
        • International recovery under way
        • Recovery in financial and commodity markets
        • BUT volatility and uncertainty still apparent in currencies, commodity markets
        • “ Double –dip” recession cannot be ruled out
      • Medium-term outlook still uncertain
        • End of inventory-driven upturn
        • Duration of impact of fiscal stimulus
        • Consumer confidence
        • Lagging impact of rising unemployment
        • Financial sector uncertainty – re-regulation
        • De-leveraging
        • Rising long-term interest rates & crowding out of private investment
    • Outlook & risks …. SADC
      • Positive
      • Africa growth should resume pre-crisis trajectory – helped by higher global growth
      • Resource rich – benefit from resumption of commodities boom
      • Focus can now change – from short-term output stabilisation to medium-term development challenges
      • Negative
      • Slow growth in Europe – major export market
      • Global growth – still vulnerable
      • Limited growth of donor resources, especially bilateral
      • Commodity price volatility
      • Slow progress on regional integration
      • Energy shortages
    • Implications for DFIs
      • Finance is at the centre of attention
      • SADC financial systems generally stable
      • Recognition that markets and commercial FIs cannot achieve everything
      • Many African countries still by-passed by commercial flows
      • Banks still cautious
      • Recognition that particular development gaps exist – infrastructure, SMMEs, agriculture, unbanked – that may have to be filled by DFIs
      • Scope for more stable view of risk
      • Improving domestic bond markets
      • AfDB – AFMI
      • Government resources constrained
      • More resources from MFIs
      • Opportunities in new technologies & partnerships (MFIs, telcos, donors)
      • Regulation?
    • Thank You