Fragile but resilent, EA will post 3-5pc growth

What role has the World Bank played in mitigating the effects of the financial crisis, especially in vulnerable countries like those in East Africa?

The World Bank has called for a Crisis Response Facility to ensure quick and effective assistance to vulnerable poor countries.

In fiscal year 2009, the Bank committed nearly $60 billion to support countries hit by the global crisis, a 54 per cent increase over the previous year.

The Bank’s global crisis response initiatives focus on three priority areas: the safety net programmes to protect the most vulnerable; maintaining investments in infrastructure, and support for small and medium-size enterprises and microfinance.

These initiatives have mobilised an additional $8.3 billion to mitigate the crisis impact on poor countries.

Since the last quarter of 2009, East Africa’s economies have shown signs of recovery.

Loan defaults have gone down while commercial banks have started expanding their lending to the market.

However, the recovery in growth is projected to be moderate and fragile, with output in sub-Saharan Africa expected to accelerate to below-trend growth rates of 3.8 per cent this year and 4.6 per cent in 2011.

What is likely to drive this growth?

The rebound in economic activity will primarily be fuelled by recovery in private demand, exports and investment, with the largest contribution expected to come from exports.

The overall strength of the recovery, however, will depend on growth performance in key export markets and investment partners, particularly the United States, the European Union and China.

Despite this, growth in external demand is expected to wane in the second half of 2010.

And stronger domestic demand will cause import growth to accelerate with net exports contributing negatively to overall growth.

But all is not lost. We have seen the East African Community pursuing a number of sustainable projects that are likely to attract capital flows.

Should the region go ahead with its plans for sovereign bonds?

The international market is still volatile. It could be very costly to countries to borrow funds.

My fear, though, is not so much of the cost of borrowing but the channelling of the proceeds from the bonds to the intended projects.

The countries involvement — Tanzania, Kenya and Uganda — should come up with measures to ensure the funds are used in the projects intended.

Will the projected recovery reduce unemployment and poverty levels in East Africa?

These two issues will still be critical and will have to be tackled this year and for some years to come. The recovery in tourism and remittances will be modest this year.

Therefore, human capital absorption in the labour market will be relatively low. Many countries in sub-Saharan Africa have limited social safety nets. Private consumption is projected to grow by 3.2 per cent, fuelled by higher incomes in export-oriented sectors.

What are the risks facing the East African economy?

The world economy could stagnate. This would undermine the recovery in external demand and would put pressure on East African commodity prices, undermining government revenues and possibly pushing debt to unsustainable levels.

In turn, this could force governments to implement procyclical fiscal cuts, increase taxation, or a combination of the two, with adverse implications for poverty, health, education and long-term growth prospects.

Tourism, remittances and private capital flows may also decline further.