The African Business Review May-Jun 2014 | Seite 21

1. Exchange rates should be used to rebalance the economic
growth:

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In countries where the terms of trade deteriorated, real exchange
rates will have to depreciate to preserve macroeconomic stability.
Countries with exchange rate flexibility should let the nominal
exchange rate depreciate while keeping fiscal and monetary
policies sufficiently tight to avoid devaluation –inflation spiral.
2. Need for Judicious use of the fiscal space
Fiscal responses should be tailored to specific country
circumstances. There may be scope for a fiscal stimulus in some
countries but, in many other countries, this option may not be
available due to already weakened fiscal positions and concerns
regarding fiscal sustainability. In some countries, there may even
be a need for fiscal consolidation. In all cases, spending plans
should be cast in a medium-term context, with targeted measures
to protect the most vulnerable.
3. Need to monitor the balance sheets of financial institutions
Governments of African countries should identify the
vulnerabilities of the banking system and plan how they will
react should a banking crisis erupt. The liquidity and usability of
reserve assets, the status of non-performing loans in the banking
sector and the availability of trade credit deserve some particular
attention.
4. Focus on Medium-term goals
The gloomy environment puts an even higher premium on
keeping African economies in a stable form. It is now important
to make every effort to move ahead with the planned structural
reforms. The current crisis should be seen as an opportunity to
foster domestic consensus for urgently needed reforms in Africa.

References

Balogun ED (2009): ‘Determinants of West African Monetary
Zone (WAMZ)