1. Governor, Bank of Uganda
THE GLOBAL FINANCIAL CRISIS AND ACCESS TO FINANCE Implications for African economies
Prof. E. Tumusiime-Mutebile
Governor, Bank of Uganda
AfDB Ministerial Round table
Dakar, Senegal
May 12, 2009

2. Presentation Outline A. Introduction
B. Appropriateness of International response so far
C. Dangers posed to access to private and public financing
D. Policy measures for consideration
E. Concluding Remarks

3. A:Introduction
Global Crisis is “Once in a century tsunami”, born of the collapse deep inside the US housing sector and cascading outwards leading to Financial markets instability and more recently , a recession
Global Crisis threatens key drivers of sustained economic growth- technology, capital and labor
Crisis risks compromising Africa’s macroeconomic gains via the triple deficit problem of high fiscal deficit, high current account deficit and high private sector saving-investment gap

4. A:Introduction (con’t)
Global growth prospects decline significantly; -3.3% in 2009 for developed countries and -2% for emerging and developing economies
Africa growth rates are expected to slowdown to 2.8% in 2009
Export and import growth projected to decline by 7% and 4.7%, respectively (adverse terms of trade and declining volumes)

5. A:Introduction (con’t)
In the developed high income countries, recession has set on and the volatility in the markets remains at a record high
In some of the low income countries revenues from remittances & tourism have fallen drastically

6. B. Appropriateness of International response so far
Total value of IMF (Exogenous Financing facility), World Bank’s Rapid Access Facility, AfDB $ 2.5 bn (emergency liquidity and trade finance facility) & bilateral donor community new facilities need to be increased to offset current and future BOP problems

7. B. Appropriateness of International response so far
Economic diversification is critical in improving Africa's resilience to external shocks
#reduce dependence on primary commodities

8. C: Risks to access to Financing
Refinancing risk:
# Risk averseness of markets may lead to tightness and conservativeness in lending and
# Depreciation of currencies may all increase foreign currency loan obligations for Africa’s private sector
Deeper Financial sector reforms are key in increasing efficiency in savings mobilization and investment allocation
Requires Capacity and productivity focused policies

9. C: Risks to access to Financing
Credit Risk, regulation and financial stability:
# reduction in investment financing and economic slowdown may saddle Banks’ balance sheets with non-performing assets
# Access to international credit facilities by Africa’s exporters could become difficult
Need to strengthen regulatory capacity through establishment of financial stability units and capacity

10. C: Risks to access to Financing
Regulatory risk and financial stability
#timely detection of changes and vulnerabilities
# comprehensive stability assessment highlighting various risks to macroeconomic stability
(Establishment of Financial Stability Department in Bank of Uganda)

11. C: Risks to access to Financing
Public finances
# Global recession may impact negatively on demand for exports, reduced current transfers posing concerns for current account deficits and attendant financing
# Vulnerability to swings in external financing is unavoidable for most African countries given the current levels of Current account deficits (5% or more of GDP)
# Need to fast track regional integration, consolidation of export- oriented policies and infrastructure investment to increase domestic productivity and reduce domestic resource cost ratios

12. We need to continue to remove obstacles to regional trade – Waiting Trucks at a border

13. Risk to donor flows (priority shifts in budgeting of advanced economies) though no immediate cuts expected

14. Case for “light-touch” policy response
Crisis may lead to over reaction in response “ favoring short-term political gains” over long run benefits of macroeconomic stability and growth
# Need to minimize policy reversals

15. Policy measures to consider
Main challenges of African economies relate to acute shortage of financing for long-term public investment programs, private investment and export trade
Credit crunch: Need for MDBs to provide lines of credits to domestic financial institutions to increase capacity to deal with increased demand for domestic credit
Capital flows: MDBs and G20 should scale up ODA to Africa to offset immediate and future BOP shortfalls and dealing with infrastructure financing

16. Policy measures to consider
Domestic Savings mobilization
# emphasis should be on promoting efficiency and deepening of domestic financial sectors to increase savings to aid ODA
Stabilization funds: need for MDGs to put in place stabilization funds to finance counter-cyclical measures ( as a response to persistent swings in commodity prices and Terms of trade for most African economies)

17. Additional measures Focus on macroeconomic stability
Scaling up of infrastructure investment in Africa (Absorption issues as well as efficiency and effectiveness in implementation of public programs are important)
Monetary policy: Pursue objective of preservation of foreign exchange reserves and partly allow BOP shocks to be absorbed via flexible exchange rate adjustments

18. Additional measures
Financial stability focus: Need to strengthen and broaden stability assessments beyond traditional banking sector.
# Should include cross-boarder cooperation to ensure sound international financial rules and systems to minimize financial contagion

19. Conclusion
Impact so far on financing for development is not too big to warrant a major policy shift for most of African economies and certainly not in the case of Uganda.
Diversification of exports and maintenance of flexible exchange rate regimes are appropriate policies for countries heavily dependant on few primary commodities
Adjustment to crisis will require Prudent and flexible macroeconomic management plus smarter financial market regulation, including risk-based supervision

20. Global Crisis will require innovations

21. Africa too will have to find home grown solutions

22. THANK YOU