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IMF warns Africa on financial shocks

The International Monetary Fund on Thursday warned sub-Saharan Africa’s rapidly growing economies that they need to do more to protect themselves against financial shocks.

In a sign of the continent’s growing role in global financial markets, the IMF urged governments to mitigate the impact of cash rapidly flowing in and out of their economies.

Many African countries have benefited enormously in recent years from investors moving cash out of moribund developed markets in search of higher yields.

According to IMF data net private flows to sub-Saharan Africa between 2010 and 2012 were double the levels seen in 2000 to 2007.

In 2012 alone portfolio and cross-border bank flows to the fastest growing markets in the region passed $17 billion, with Ghana, Nigeria, and Zambia the main beneficiaries.

Country after country has sought to tap bond markets for relatively cheap loans.

But a possible economic slowdown in China and an end to US Federal Reserve stimulus is starting to make investors more cautious.

In some countries, like South Africa, that has caused a large depreciation in the local currency, pushing up import prices and fuelling inflation.

More broadly the IMF said the impact of these trends had so far been “muted” but it warned “if the global turmoil persists, risks of contagion and possible reversals may increase.”

“As frontier economies in the region become more integrated with global financial markets, they will also become increasingly vulnerable to global financial shocks.”

The IMF predicted weaker than expected growth of five percent in 2013 thanks to a “more adverse external environment.”

It specifically cited “rising financing costs, less dynamic emerging markets, and less favourable commodity prices.”

It recommended better monitoring of capital flows and develop tools to limit the impact of surges or reversals in investment.

The IMF also warned that a slowdown in major markets like China could hit commodity prices, with a devastating impact on revenue for many African governments.