The International Monetary Fund (IMF) warned on Wednesday that the world is facing a major economic downturn in the face of the worst financial shock since the 1930s but African economies will not be hit very hard.

Its experts said the continent will be spared the worst shocks largely because of limited integration in global financial and capital markets. Aid agencies have, however, cautioned that any cut in donor assistance to poor countries will have a devastating impact in the provision of social services and overall efforts to eradicate poverty.

"The world economy has entered a major downturn after being hit by two very large shocks: a surge in oil and commodity prices and the expanding financial crisis," IMF economic counsellor and research director Olivier Blanchard told journalists during the World Economic Outlook (WEO) report briefing.

He said the financial crisis has gotten worse, and no country will be fully immune from the effects on the real economy. The official said strong and coordinated policies can help to avoid worse scenarios noting that emerging countries will suffer from lower exports to advanced economies, expensive foreign credit and sudden reversal of capital flows.

"Those with high reserves and strong fiscal positions will be able to weather the storm," he noted.

Global growth

The WEO report projects global growth year on year will slow sharply to 3.9 per cent this year from five per cent in 2007, and continue slowing to three per cent next year. IMF experts said growth in Africa will be lower than previously predicted averaging about six per cent during 2008/09.

Responding to a question from The Citizen on how Africa will be affected and the impact of the downturn on efforts to eradicate poverty, IMF expert Jorg Decressin said the major challenge facing African countries are high food prices and limited global supply of grains.

He said African countries that will face difficult times are those whose economies are highly integrated into global financial and capital markets.

The whole continent, he noted, will however mostly feel the pinch of weakening commodity prices that are a major component of foreign exchange earnings.

"The major challenge we see for Africa is dealing with high food prices which might jeopardise hard won macroeconomic gains and provision of vital social services," the official said.

He said growth in Africa will not weaken very much during the turmoil period that is forecast to begin a modest recovery in the second half of next year. Mr Decressin called on donors to continue supporting African countries during the hard times for their assistance is vital in supporting national budgets.

Reacting to the WEO report, Oxfam International said donors must not make overseas aid the first victim of the economic crisis. It said in a statement that developing countries need the necessary support to ride out any shock they face for the problem has been caused by rich countries and poor people must not pay the price.

"The 50 developing countries that have less than three months of fiscal reserves left because of the food and fuel crises are the very ones who are going to be worst hit by the financial crisis," its spokesperson Marita Hutjes said.

"This is a dangerous cocktail for them to swallow," she noted in the statement. The agency said there have been increases in public sector spending on health and education in poor countries recently.

"Any IMF or World Bank response to the financial crisis must not eat into this progress, meaning children not going to school," it warned.

Mr Blanchard said the IMF projects growth in advanced countries to be close to zero or even negative until at least the middle of next year. He said world growth will be driven increasingly by growth in emerging and developing countries.

"But we predict that even they will growth at a substantially lower rate than they have in the recent past, seven per cent in 2008, and six per cent in 2009," he noted.