afrol News, 1 July - Many African countries are among the hardest-hit by world food and fuel price crisis, reports International Monetary Fund (IMF).

Many African countries are among the hardest-hit by world food and fuel price crisis, reports International Monetary Fund (IMF).

Eighteen countries in sub-Saharan Africa are especially hit, according to IMF, saying combined shocks have sharply increased import bill of many states.

"Fuel price increases have a variety of damaging effects, including by raising cost of agricultural production and thus, in turn, aggravating food crisis. The two shocks together raise sharply the overall import bill in many countries, threatening to derail macroeconomic stability, growth, and efforts to reach the Millennium Development Goals (MDGs)," IMF has said.

The body has further observed in its report released today that high food prices in particular tend to hit the poor the hardest, explaining that food generally represents a very large share of their expenditures. As a result IMF concludes that progress on poverty reduction, social cohesion, and the broader development agenda, has been put at great risk by distortions brought by combined shocks.

The IMF reports further produces an analysis of implications of price shocks for balance of payments of low-income countries in sub-Saharan Africa, saying those that are especially hard hit, consequently, face a pressing need for additional balance of payments and budget support.

The list reflects country circumstances and underlying assumptions as of May 2008, though IMF say impacts are country specific. The list includes Eritrea, Ethiopia, Guinea, Liberia, Madagascar, Malawi, the Democratic Republic of Congo, and Zimbabwe as the most hard hit, though Zimbabwe as noted by IMF is ineligible for Fund financial assistance and prohibited from receiving technical assistance.

"The most important step is to stop hyperinflation and restore macroeconomic stability. Donors and WFP already provide substantial food aid to vulnerable groups. This aid might need to be increased with the ongoing economic, social, and political crisis," IMF said about Zimbabwe.

The fund has further warned that high food and fuel prices are likely to persist, saying a pass-through to higher domestic prices, though not necessarily immediate, is therefore ultimately unavoidable. "More broadly, monetary, fiscal and other policies will have to adjust. In some cases, exchange rate can play an important role," said IMP report.

About needed additional financing for countries, IMF has said this would in the short term, meet higher import bills and give countries time to phase in necessary adjustments, thereby easing their economic impact and reducing social pressures.

"Such support may also make it feasible for some countries to run temporarily larger fiscal deficits to cover targeted budgetary assistance to the poorest segments of the population," added IMF report.

In the longer term, IMF notes that additional budgetary expenditures may be called for to promote development of domestic agriculture and to put in place sustainable social safety nets.

While these expenditures may be met in part through higher domestic revenues or reductions in other spending, additional concessional financing will also have a role to play, said the report, further adding that terms of such financing will need to take into account individual countries' debt situations, noting that for most countries, it should be wholly or predominantly on grant terms.

"There are a couple of caveats: Although there is merit in focusing attention on the hardest hit, the list is not meant to be definitive. First, there is a degree of arbitrariness in the cutoffs used to place countries on the list. Countries below the cutoffs in many cases have substantial and urgent needs," explained IMF.

Other countries listed by IMF as vulnerable, mainly because of international reserves showing a down-slide are: Benin, Burkina Faso, Central African Republic, Guinea Bissau, Mali and Togo; as well as states said to be with particularly weak initial institutional frameworks, such as Burundi, Comoros, the Gambia, and Sierra Leone.

Giving other extreme cases, IMF said for Madagascar, for instance, cost of reconstruction due to natural disasters (cyclones) is also a factor, while in Malawi, the negative impact is mainly due to the oil shock as well as higher fertilizer prices, adding the magnitude of the shock is about 4 percent of GDP, more than half of Malawi's international reserves.

By staff writer

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