PROTECTING AFRICA AGAINST "SHOCKS"

Abstract

or Africa’s future and the reaching of the Millennium Development Goals (MDGs), it is vital to analyse the issue of how to protect the continent against exogenous “shocks”, that is, events beyond the control of African governments. 2 African countries, especially low-income countries, are highly vulnerable to shocks. These may impact directly on the balance of payments – notably exports (commodity price changes, drought and floods) – or the budget – notably budget revenue (import duty shortfalls, devaluation); or less directly by increasing balance of payments or budget financing needs (import price increases, notably for food and petroleum; and erratic donor aid flows).3 Such shocks can reduce GDP by as much as 5 percent, and cause dramatic cuts in budget spending on the Millennium Development Goals. There is also strong evidence that the income of the poor is hit even harder by shocks, provoking a major setback to progress towards the MDGs. In recent years, the HIPC Debt Relief Initiative has also emphasised the vulnerability of Africa’s debt sustainability to external shocks. Effective protection against the impact of shocks would therefore be a highly worthwhile investment for international financing and policy,

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