Economic growth in Africa has slowed significantly as a result of the collapse of global trade and disruptions in global financial markets.
However growth is expected to regain momentum as the global recovery gets underway according to newly released Economic Outlook report authored by the International Monetary Fund (IMF).
As a result of the crisis, real Gross Domestic Product (GDP) growth in Africa is projected to decline from an average of 6 percent in 2004-08 to 1.75 percent in 2009, before accelerating to 4 percent in 2010.
The report says Rwanda’s economic growth is projected to decline to 5.3 percent from 11.2 percent registered last year.
While this growth performance is disappointing in the light of the experience of the mid-2000s the report says, it is still encouraging given the “harshness” of the external shocks on the continent.
Due to the crisis, private capital flows to Africa, which had risen to $53 billion in 2007 from $30 billion in 2002, have dried up, forcing a cancellation, delay or postponement of projects.
For Rwanda, the impact of the global economic crisis has led to a sharp fall in Rwandan export revenues and a slowdown of economic activity in the country.
Rwanda’s export earnings in the first half of this year dropped by 32 percent while the import bill rose by 26.9 percent to give a trade deficit of $ 532 million (Rwf.300.7b).
Rwanda’s economic growth is projected to decline to 5.3 percent from 11.2 percent registered last year.
“Africa is an innocent victim of the crisis that has been severely affected. However African economies are emerging out of the crisis.
Recovery has started and financial markets are healing,” IMF Chief Economist Olivier Blanchard told a press briefing at the launch of the report on Thursday in Istanbul.
The launch comes a few days ahead of the World Bank / IMF Board of Governors annual meetings due mid-next week.
Blanchard also said recovery is largely accounted for by strong public spending and inventory adjustment by firms notably in the United States and advanced economies.
However, this is also true for low income countries like Rwanda which increased its annual budget by 24 percent in the 2009/10 financial year to promote growth and weather external shocks resulting from the global crisis.
Rwanda’s economy has begun to recover from external shocks as export and service sectors started showing positive trends in the second quarter of the year due to high government expenditure.
“This has seen more people employed and more liquidity in the economy. The second quarter of the year looks much better than we had projected; we are likely to get slightly better results,” Finance Minister James Musoni told Business Times recently.
Musoni observed that prices of Rwanda’s major exports like tea and coffee have started to rise while overall economic activity is increasing smoothly as credit disbursement in the banking system is on an upward trend, thrusting the construction industry.
However the report warns governments, that the current figures should not “fool governments” into thinking that the crisis is over.
“Countries must avoid a premature exit from policies they put in place during the last year. Countries must also coordinate policies so as to achieve global rebalancing and sustain the recovery,” Blanchard said.
In most countries according to the report, growth will be positive for the rest of the year, as well in 2010.