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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00589R000200210004-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 36
• Document Creation Date: January 12, 2017
• Document Release Date: July 14, 2010
• Sequence Number: 4
• Publication Date: May 1, 1985
• Content Type: REPORT

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Directorate of --
Intelligence 25X1
Sub-Saharan Africa:
The IMF Experience
Seer et
ALA 85-10052
May 1985
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Directorate of Secret
Intelligence
Sub-Saharan Africa:
The IMF Experience
Division, ALA,
This paper was prepared by the
Office of African and Latin American Ana-Fy-si-s.
Comments and queries are welcome and may be
directed to the Chief, Regional Issues Branch, Africa
Secret
ALA 85-10052
May 1985
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Sub-Saharan Africa:
The IMF Experience I 25X1
Key Judgments Since 1978, Sub-Saharan African countries have become increasingly
Information available dependent on balance-of-payments loans from the International Monetary
as of 10 May 1985 Fund (IMF). Fund involvement in the region has grown as financial flows
was used in this report.
from banks and governments in industrial countries failed to keep pace
with Africa's burgeoning external financing requirements. Indeed, between
1978 and 1984, 39 of 44 member countries in the region received IMF
funding; IMF loans outstanding nearly quadrupled to $5.4 billion.F25X1
The bulk of IMF funds has been conditional on implementation of
economic adjustment programs and meeting economic performance crite-
ria agreed to by the IMF and the borrowing country. By the end of 1984,
28 of the 39 beneficiary countries had made over 80 arrangements with the
IMF, subject to these conditions.
The objective of the IMF programs has been to assist countries to attain a
viable balance-of-payments position through policies that reduce or elimi-
nate the economic distortions that in part caused the payments difficulties
in the first place. The adjustment programs usually involve currency
devaluations, tax reform, stricter budget controls, reductions in the scope of
government enterprises, and development of a more market-oriented
environment. Despite the range of changes usually called for, these
programs have produced mixed results so far:
? Ghana, Ivory Coast, Kenya, Mali, Senegal, Togo, and Zaire have been
moderately successful in their adjustment efforts. Although the balance-
of-payments problems of these countries have not disappeared, they have
reduced their current account deficits substantially since 1980-81 and
have, for the most part, implemented fiscal and monetary policies and
made institutional changes that should continue contributing to viable
balance-of-payments positions.
? Liberia's economic performance under IMF sponsorship has worsened
sharply since mid-1984 in the uncertain political environment preceding
a possible return to civilian government next year. Monrovia's unbudget-
ed spending and lax revenue collection have contributed to a financial
crisis and breached the IMF agreement. The IMF program has been
suspended since December.
Secret
ALA 85-10052
May 1985
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? Zambia's economic adjustment efforts have been undercut by the
economy's overriding dependence on weak international copper markets.
Despite reductions in current account deficits since 1981, foreign ex-
change shortages have contributed to persistent budget deficits and to
arrearages on debt repayment. These financial problems have, in turn,
stymied much of the new investment needed to diversify the economy
from copper.
Nonetheless, the Fund's involvement has been beneficial. At a minimum,
IMF programs have limited the balance-of-payments deterioration that
otherwise might have occurred in some countries. In addition, the pro-
grams have enabled countries to avoid the probably more inefficient self-
initiated adjustment that would have to occur in the absence of IMF
support. Moreover, in our judgment, the IMF has been responsive to the
economic problems facing the Sub-Saharan countries. In nearly all cases
where a country failed to meet performance criteria and its loan agreement
was voided, the IMF quickly negotiated a new agreement:
? Between 1978 and 1984, of 10 countries which failed to meet IMF
performance criteria, seven-Kenya, Liberia, Madagascar, Malawi,
Mauritania, Mauritius, and Senegal-had their programs promptly
renegotiated by the Fund.
? Another three-Sierra Leone, Zaire, and Zambia-were without re-
placement programs for up to 21 months pending new agreements with
the Fund.
? Tanzania's 1980 program lapsed in 1982 without formal IMF cancella-
tion and it has been trying, unsuccessfully, to stabilize the economy on its
own.
While IMF-supported programs have been key ingredients in gaining
financial support, implementing the programs has been politically risky for
African governments. The budgetary strictures and restraints on monetary
expansion usually required lead to curbs in government employment,
reductions in subsidies and other transfer payments, and shifts in economic
benefits from urban to rural producers and consumers. Because the
political strength of African leaders is often in urban areas, they risk
alienating critical political support. Even though Sub-Saharan govern-
ments have been able to avoid serious unrest in the face of austerity, Sudan
provides a ready example of the risks involved in changing price and
subsidy structures.
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We believe that most Sub-Saharan countries will continue to depend on
financial assistance from the IMF and other sources for several decades.
Because we do not see any prospect during the rest of this century for a
radical shift from their role as producers and exporters of primary
products, these countries will almost certainly remain vulnerable to
fluctuations in primary commodity prices and suffer corresponding insta-
bility in their balance of payments.
While the IMF's role in Africa is likely to remain crucial in providing
balance-of-payments support and in assisting in the implementation of
economic adjustment programs, the principal sources of external financing
for Sub-Saharan Africa probably will continue to be official bilateral
channels and multilateral financial institutions other than the IMF, such as
the World Bank, the European Community, and UN agencies. As
economic conditions in Sub-Saharan Africa are likely to remain bleak, the
United States will probably be called upon to give more bilateral economic
assistance and to provide additional funds to the multilateral institutions.
Given the dimensions of the region's economic problems, any response is
likely to fall short. This in turn will only increase the political complexity of
dealing with Africa in the years to come.
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Key Judgments
iii
Scope Note
ix
Balance-of-Payments Problems
1
Impact
2
The Relative Role of Official Development Assistance
4
Adjusting to the Problems
4
The IMF and Economic Adjustment Programs
8
Performance Under IMF-Supported Programs:
A Functional Perspective
9
Performance Under IMF-Supported Programs:
A Country Perspective
10
Obstacles to Successful Adjustment
13
Outlook and Implications
14
Appendixes
Kenya 20
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Scope Note This is one of several papers published or under way in the Directorate of
Intelligence that examine the experiences of developing countries with
IMF-supported adjustment programs. This paper deals with the 39 Sub-
Saharan African countries that have received IMF funding since 1978, the
year when severe balance-of-payments financing problems throughout the
Third World became a critical issue. The paper surveys the broad and
varied experience of these countries under IMF-supported programs, and
an appendix provides detailed analyses of four types of African responses.
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Figure 1
Sub-Saharan Africa: The IMF Experience
Azores
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Country with IMF-supported economic
adjustment programs between 1978-84.
(Rwanda did not activate its program)
Country without an IMF program
Boundary representation is
not necessarily authoritative.
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Reunion
(France)
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Sub-Saharan Africa:
The IMF Experience
Over the past few years, the role of the International
Monetary Fund (IMF) in Sub-Saharan Africa has
expanded dramatically. In 1978, only 10 African
countries went to the Fund for balance-of-payments
support but, by the end of 1984, the number of
countries had grown to 39 (see figure 1). Over this
period they and the IMF signed more than 80 sepa-
rate arrangements. In addition to an increasing num-
ber of countries, the level of the IMF commitments
also was on the rise. During the 1978-84 period,
outstanding IMF loans to Sub-Saharan countries
nearly quadrupled in value, from $1.5 billion to $5.4
billion. At the end of 1984, 13 Sub-Saharan African
countries were among the 33 IMF members with loan
programs subject to high levels of economic policy
conditionality.'
The increased reliance on the IMF has occurred as
the countries in Sub-Saharan Africa have sought
ways to help cover widening balance-of-payments
deficits. The relative importance of Fund financing
picked up after 1980 when official bilateral capital
inflows from industrial countries, the main source of
external financing in the past, failed to keep pace with
financial demands. At the same time, loans from
commercial banks and other foreign private sources
were not made available in required amounts because
private lenders, already shaken by the international
debt crisis, generally did not view African countries as
prime credit risks. The Sub-Saharan countries were
compelled to turn to the IMF for new funds and, in
exchange, had to adopt economic adjustment pro-
grams (see figure 2).
Causes
The balance-of-payments problems of African coun-
tries reflect longstanding and cumulative adverse
economic factors. Nearly all Sub-Saharan countries
suffered increased current account deficits after the
initial shock of the oil price increases of 1973-74.
According to international trade statistics, some coun-
tries benefited for a time from the boom in 1975-78 of
primary commodity prices such as cocoa (Ghana,
Ivory Coast), coffee (Ivory Coast, Kenya), peanuts
(The Gambia, Senegal), and sugar (Mauritius), but
they often spent these revenues on imports or capital
projects, neglecting to sufficiently build foreign ex-
change reserves. Countries that depended heavily on
mineral exports, including Liberia and Mauritania
(iron ore) and Zaire and Zambia (copper), were less
fortunate because mineral pricer continued to decline
during the 1974-78 period.~
The present phase of Sub-Saharan Africa's financial
crisis was triggered by a second round of oil price 25X1
increases in 1979-80, the end of the boom in non-
mineral primary commodity prices and the onset of
recession in the industrialized countries. These devel-
opments, which were interrelated, translated into a
dropoff in demand for the region's export products.
Moreover, they caused a substantial worsening in the
terms of trade-the prices of exports relative to the
prices of imports-for oil-importing Sub-Saharan Af-
rican countries. we esti- 25X1
mate that the terms of trade for these countries,
South Africa excluded, deteriorated by an average of
5 percent a year from 1978 to 1982. Since then,
marginal terms-of-trade improvements in 1983 and
1984 have had little positive impact on the balance of
payments of the region.
In addition to these adverse external developments, 25X1
structural characteristics and domestic economic poli-
cies have also helped compound Sub-Saharan Africa's
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Figure 2
Sub-Saharan Africa: Financial Flows From the IMF,
1978-84
Purchases
Repurchases
Net flow
a Special Drawing Right (SDR) values converted at period average SDR/S exchange rates.
Excludes South Africa.
economic problems. Although countries obviously dif-
fer on specifics, most Western analysts have identified
a general pattern.2 Among the major elements are:
? A dependence on exports of primary products whose
markets have been restricted by slow economic
growth in industrial countries since the late 1970s
(Kenya, Liberia, Tanzania, Zaire, Zambia).
? Drought that contributed to a rate of agricultural
growth lower than that of population growth since
the 1970s (Burkina, Central African Republic,
Chad, Ethiopia, Mali, Niger).
? Exchange rate policies that overvalue domestic cur-
rencies as governments resist currency devaluations,
despite inflation rates higher than those abroad
(Burundi, Nigeria, Rwanda, Tanzania).
? Inadequate price incentives for agricultural produc-
tion and nonmineral exports (Ghana, Senegal,
Tanzania).
? Sizable budgetary deficits driven by expansionary
economic policies, explosions in public-sector em-
ployment, and extensive economic activity by public
enterprises, all of which are financed largely by
inflationary government borrowing from the domes-
tic banking system (Congo, Kenya, Liberia, Tanza-
nia).
Impact
The impact of these factors on the combined current
account balances of the Sub-Saharan countries has
been dramatic. We estimate the current account
deficit of the region, exclusive of South Africa and the
oil-exporting countries of Congo, Gabon, and Nigeria,
to have tripled from $2 billion in 1973 to $6 billion in
1978 and to have reached a peak of $11 billion in
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The IMF is mainly funded by member-country sub-
scriptions and, on occasion, by borrowing from mem-
ber countries and international institutions. Other
sources of funds include charges on members for
services and investment and interest income. The
IMF also administers two special accounts for the
benefit of developing-country members-the Trust
Fund and the Supplementary Financing Facility Sub-
sidy Account-which are funded separately.
Access Policy to support longer term adjustment. The
stringency of the loan conditions increases with the
extent of the drawings.
The Extended Facility, which makes resources
available in larger amounts and for longer periods
than under credit tranche policies.
Subscriptions are determined by the size of the quota
assigned to each member and are paid mainly with a
member country's own currency, plus a smaller
amount, not exceeding 25 percent, in reserve assets.
The reserve assets include other currencies acceptable
to the IMF and Special Drawing Rights (SDR), a
reserve asset periodically created by the IMF and
allocated to members on the basis of quota size to
supplement existing reserve assets.
IMF funds are made available to a member to meet
balance-of-payments needs primarily by exchanging
the member's own currency for the currencies of other
members. Because the IMF s resources are intended
to function as a revolving fund, this `purchase" or
"drawing" offunds is expected to be reversed in due
course with a "repurchase" by the member of its own
currency and the return to the IMF of an equivalent
amount of other currencies or SDRs.
Member countries obtain IMF funds either through
the basic IMF policy for general balance-of-payments
support or through special loan facilities established
for specific purposes linked to balance-of-payments
need. The basic IMF policy for general balance-of-
payments support makes funds available to a member
in successive tranches, each equal to 25 percent of a
member's quota. The first "reserve" tranche drawing
is considered the counterpart of reserve assets depos-
ited with the IMF when the member's quota was
determined and only requires a member's statement
of need in order to be implemented. Additional
"credit" tranche drawings, each equal to 25 percent
of quota, require additional documentation of need
and usually a standby, arrangement that includes
economic adjustment policies that help to ensure that
the credit will be repaid. Drawings above four credit
tranches are possible under the Fund's Enlarged
The Compensatory Financing Facility, which lends
to members experiencing temporary shortfalls in
export earnings from merchandise exports-main-
ly primary products and invisibles-or balance-of-
payments difficulties owing to an excess in the cost
of cereal imports.
The Buffer Stock Facility, which provides balance-
of-payments support loans to help members fi- 25X1
nance international buffer stocks of primary prod-
ucts. 25X1
The Trust Fund provided grants and concessional
loans to LDCs, 1977-81.
The Supplementary Financing Facility Subsidy
Account subsidizes interest costs for poorer LDC 25X1
borrowers from the IMF s Supplementary Financ-
ing Facility (SFF), which operated from 1977 to
1984 with borrowed funds. The SFF has been
replaced by the IMF `policy on enlarged access,"
which has a function similar to that of the Extend-
ed Facility but has changeable guidelines on fund-
ing and loan limits.
The IMF limits the rate at which members may draw
on its various loan sources. The present limitations
on drawings are equal to 95 to 115 percent of quota
through the end of 1985 and to 280 to 345 percent of
quota over three years. Total allowable debt to the
IMF is 408 to 450 percent of quota. The allowable
percentages depend on the severity of the country's
balance-of-payments problem and may be exceeded
in special circumstances.
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The provision of funds by the IMF is conditional on
the implementation of policies aimed at correcting
balance-of-payments problems. Conditionality is low-
est for drawings on the Buffer Stock Facility, Com-
pensatory Financing Facility, and a member's reserve
tranche. It is fairly liberal for drawings on the first
credit tranche but increases with drawings on succes-
sive credit tranches.
For drawings on the higher credit tranches, condition-
ality is implemented through standby arrangements
for periods of usually 12 to 18 months or through
extended arrangements of up to three years. Each
arrangement with the IMF involves a program of
corrective domestic policies including a number of
performance criteria. The funds stipulated in each
arrangement are paid out in installments conditional
on meeting the performance criteria.
Performance criteria are normally limited to macro-
economic variables and to policies that ensure com-
pliance with certain basic provisions of the IMF s
Articles of Agreement. Macroeconomic criteria may
include, for example, ceilings on domestic credit
expansion, budgetary deficits, and foreign borrowing.
Currency devaluation is sometimes required by the
IMF as a precondition for the signing of an agree-
ment. The member country also routinely agrees not
to restrict payments for current account transactions
and not to impose or intensify import restrictions for
balance-of-payments purposes. Performance criteria
are usually specified for three-month periods, and
each arrangement is subject to quarterly review by
the IMF.
1981. Even with a modest recovery in primary com-
modity prices, along with some restriction in imports,
this deficit was still about $7 billion in both 1983 and
1984 (see table 1).
international financial institutions. As a result, the
official and officially guaranteed disbursed medium-
and long-term external debt of the region, South
Africa excluded, more than doubled to $58 billion
between 1978 and 1983, of which about $34 billion
was owed to official bilateral and multilateral lend-
ers.' We estimate the official medium- and long-term
external debt totaled at least $63 billion by the end of
1984. In addition, indebtedness to the IMF stood at
nearly $6 billion.
The Relative Role of Official
Development Assistance
Despite the expanding IMF role, the principal source
of external financing of Sub-Saharan Africa has been
and remains official development assistance (ODA) in
the form of grants and loans from governments and
multilateral organizations in industrial and, to a lesser
extent, OPEC countries (see table 2). In 1983, ODA
accounted for roughly 65 percent of net financial
flows to the region, which averaged $7 billion annual-
ly since 1980 compared with average IMF net flows
of $1.4 billion.
The degree of dependency on ODA as a source of
financial inflows varies. In 1983, for example, ODA
accounted for only 2 percent of Nigeria's total net
financial inflows and 23 percent of Gabon's. At the
other extreme, ODA was 99 percent or more of the
total net financial inflows to 13 countries, including
Chad, The Gambia, Malawi, Mali, Tanzania, and
Zambia.
IMF Financial Flows
The IMF has been fairly responsive since 1978 to
Sub-Saharan Africa's worsening balance-of-payments
situation, as reflected in both the gross and net
financial flows from the IMF to the countries of the
Sub-Saharan Africa's growing current account defi-
cits forced greater reliance on external financing. In
meeting this challenge, the countries in the region
turned not only to traditional aid donors for more
support but also increased their dependence on the
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Table 1
Sub-Saharan Africa: Current Account Balances
and Financial Flows From the IMF
Excluding Congo, Gabon,
Nigeria, and South Africa
-6.0
-7.0
Excluding Congo, Gabon,
Nigeria, and South Africa
0.2
0.6
Excluding Congo, Gabon,
Nigeria, and South Africa
0.1
0.3
(Memorandum item: net official devel-
opment assistance disbursements, all
countries)
(5.0)
(6.0)
a Goods, services, and private transfers.
b Estimated.
c SDR values converted at period average SDR/$ exchange rates.
region (see table 1 and figure 2). Excluding South
Africa and the oil-exporting countries of Congo,
Gabon, and Nigeria, gross flows from the IMF to
Sub-Saharan Africa rapidly escalated from $200 mil-
lion in 1978 to a peak of $1.8 billion in 1981 while the
current account deficit of these African countries rose
from $6 billion to a record $11 billion. Since 1980,
gross IMF funding for these countries has averaged
$1.4 billion a year, although falling to $1 billion last
year. In the period 1981 to 1984, the ratio of gross
financial flows from the IMF to the combined current
account deficit of the group averaged 17 percent,
compared to the average 7 percent of the years 1978
to 1980.
the decline in 1984 in the gross
drawings of LDC members was mainly caused by
improvements in their external accounts resulting
from substantial economic adjustment efforts, partic-
ularly by major debtors. We believe that in the case of
Sub-Saharan African countries other factors contrib-
uted, since several countries did not repeat their 1983
drawings from the Compensatory Financing Facility
because of a slight pickup in primary commodity
prices. In addition, the heavy drawings in 1983 under
support packages for relatively large economies such
as those of Ivory Coast, Sudan, and Zimbabwe were
not to be repeated on the same scale in 1984.
28 of the 39 African
states that have drawn funds from the IMF between
1978 and 1984 have done so with relatively high
economic policy conditionality, either through stand-
by arrangements or the Extended Fund Facility. The
remainder drew mainly from the countries' reserve
tranches or the IMF's Compensatory Financing Facil-
ity, neither of which involve significant conditionality
(see table 3).
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Table 2
Sub-Saharan Africa: Profile
of Financial Flows, 1983
Official
Development
Net Financial Flows From
ODA as a Percent
of All Sources
IMF Flows as a
Percent of All
Assistance (ODA)
(million US $)
IMF
(million US $)
All Sources a
(million US $)
(percent)
Sources
(percent)
Total
6,727.3
1,391.5
10,463.3
Angola
73.4
200.9
36.5
103.6
129.5
80.0
189.9
201.7
94.1
141.0
129.5
108.9
Cameroon
132.3
13.4
361.1
36.6
3.7
Cape Verde
56.3
60.5
93.1
Central African Republic
93.2
5.8
98.1
95.0
5.9
Chad
86.2
3.5
84.6
101.9
4.1
Comoros
38.8
40.1
96.8
Congo
108.5
3.5
322.5
33.6
1.1
Djibouti
64.6
66.1
97.7
Equatorial Guinea
12.4
1.5
13.3
93.2
11.3
Ethiopia
257.7
-19.2
284.4
90.6
NA
Gabon
63.6
-8.0
279.7
22.7
NA
Gambia, The
42.2
-1.8
38.3
110.2
NA
Kenya
398.6
95.8
478.6
83.3
20.0
Lesotho
101.3
103.3
98.1
Liberia
118.4
55.3
-125.1
NA
NA
Madagascar
241.6
12.3
236.6
102.1
5.2
Malawi
116.8
25.5
105.4
110.8
24.2
Mali
214.1
17.0
214.8
99.7
7.9
Mauritania
171.5
-2.5
215.5
79.6
NA
Senegal
315.0
28.3
455.8
69.1
6.2
Seychelles
15.8
0.7
18.3
86.3
3.8
Sierra Leone
65.1
23.1
66.5
97.9
34.7
Somalia
335.9
50.7
411.8
81.6
12.3
Swaziland
33.6
10.7
53.0
63.4
20.2
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Table 2
Sub-Saharan Africa: Profile
of Financial Flows, 1983 (continued)
Official Net Financial Flows From ODA as a Percent IMF Flows as a
Development of All Sources Percent of All
Assistance (ODA) IMF All Sources a (percent) Sources
(million US $) (million US $) (million US $) (percent)
604.4 -20.3 610.0 99.1 NA
Togo
111.3 23.4 110.5 100.7 21.2
Uganda
134.7 107.8 190.8 70.6 56.5
Zaire
318.3 128.2 111.1 286.5 115.4
Zambia
216.4 80.0 218.1 99.2 36.7
Zimbabwe
206.8 164.2 333.4 62.0 49.2
Other
24.5 24.5 100.0
a OECD data on net financial flows from 17 developed countries,
OPEC, and multilateral organizations. The data exclude flows from
Soviet Bloc countries, other LDCs, and the IMF, except for the
IMF-administered Trust Fund.
Table 3
Sub-Saharan Africa:
Gross Drawings From the IMF a
From
Reserve
From Credit Tranches
Extended
Fund
Compensatory
Financing
Buffer
Stock
Total
Number
of
Tranche
Under Standby
Arrangements
Other
Facility
Facility
Facility
Countries
Total
956.2
3,415.8
78.2
1,130.8
2,371.5
9.1
7,961.6
1978
15.3
192.6
17.3
48.1
273.3
12
1979
45.6
256.5
95.9
398.0
12
1980
33.4
293.3
21.6
284.7
633.0
22
1981
55.4
512.3
36.7
126.3
134.1
864.8
15
1982
517.7
463.8
701.4
478.9
2,161.8
23
1983
53.3
742.3
2.6
166.5
947.4
5.9
1,918.0
26
1984
235.5
955.0
136.6
382.4
3.2
1,712.7
35
a Fiscal years ending 30 April. SDR values converted to US $ at
end-of-period SDR/$ exchange rates.
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The degree of IMF involvement depends on more
than just new funding flows. The requirement for
IMF members to repay funds borrowed earlier and
the level of repayments also have to be factored in
when determining the net resources that are being
made available. Net financial flows to the oil-import-
ing Sub-Saharan African countries, excluding South
Africa, still grew from $100 million in 1978 to $1.5
billion in 1981 and averaged over $1 billion a year
from 1981 to 1983, falling in 1984 to $500 million.
Over the period 1978 to 1984:
? Zambia heads the list with $766 million in net
drawings. Since April 1978, the country has almost
continuously implemented IMF-supported adjust-
ment programs with one arrangement under the
Extended Fund Facility and three standby arrange-
ments. The latest standby arrangement extends
through April 1986. Zambia's medium-term eco-
nomic program is geared to strengthening the agri-
cultural sector and to reducing the country's almost
total dependence on copper production.
? Ivory Coast had net drawings of $694 million,
mainly through a 1981-83 Extended Arrangement
and from the Compensatory Financing Facility.
Ivory Coast's medium-term economic objectives in-
clude reducing public-sector deficits and promoting
import substitution and export industries.
? Ghana received $495 million, mostly under two
standby arrangements since 1983 and from borrow-
ing under the Fund's Compensatory Financing Fa-
cility. Accra's adjustment program focuses on re-
structuring domestic prices, reviving the
agricultural sector, reducing the budget deficit, and
restoring the competitive position of exports.
? Zaire had net drawings of $453 million, mostly
from a 1981 Extended Arrangement and a standby
arrangement that succeeded it. Kinshasa aims at
rehabilitating agriculture, restoring the communica-
tions infrastructure, and improving production.
? Nigeria obtained $424 million from its reserve
tranche in 1982-83 as its worsening current account
deficits created foreign exchange shortages. The
reserve tranche drawing was automatic and did not
require an economic adjustment program.
? Kenya had net drawings of $404 million in the
course of an Extended Arrangement and five stand-
by arrangements during 1978-84, one of which was
not used. Nairobi's immediate economic objectives
include increasing private-sector agricultural pro-
duction, restructuring government enterprises, and
controlling its budgetary deficits.
? Uganda received $342 million. Kampala's economic
program aims at broadening the country's economic
base beyond agriculture and its strong dependence
on coffee production.
For much of the period since 1978, several countries,
while receiving fresh IMF funds, have been repaying
loans received from the IMF's Oil Facility after the
1973-74 oil price hike and from the Compensatory
Financing Facility for export earning shortfalls after
1977. As a result, Burundi, Cameroon, Chad, Congo,
and Tanzania were net payers of funds to the IMF for
the period 1978-84.
The IMF and Economic Adjustment Programs
From an individual country standpoint, involvement
with the IMF is not simply limited to financial flow
considerations. The issue of conditionality is also
critical in dealing with the Fund. Since the mid-
1950s, the Fund has required some degree of effort by
a borrowing country to overcome its balance-of-
payments difficulties in return for the use of its
resources. This position was underscored by a 1979
decision by the IMF Executive Board, which reiterat-
ed the need for members to adopt corrective measures
under the Fund's guidelines. Standby and extended
borrowing arrangements, which have governed the
bulk of IMF financial support in recent years, require
consultations with the Fund on adjustment programs
that determine the conditions on which funds will be
supplied.
The conditions attached to IMF adjustment programs
can help a country return to a sustainable balance-of-
payments position by correcting the underlying policy
initiatives that helped contribute to the payments
problem. Programs seek to establish the right signals
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at the macroeconomic level by using a wide range of
policy tools involving taxation and spending, credit,
interest rates, exchange rates, labor markets, and
prices to encourage a shift of resources toward greater
production of export- and import-competing goods
and services and to discourage excessive spending on
imports. Often, adjustment will involve a short-term
reduction in aggregate demand as well as a shift in
expenditures, because previous policies had contribut-
ed to an unsustainable expansion of demand and
rising inflation that had increased the gap between
domestic demand and production. The adjustment
policies, therefore, almost invariably involve some
short-run sacrifice as the country's production is
diverted to investment and exports, which are viewed
by the Fund as promoting longer run economic
growth and improving the balance-of-payments posi-
1978; food donations from abroad as substitutes for
potential grain import payments also helped the pay-
ments position.
This is not to say Fund programs did not make an
impact. Austerity measures by their very nature help
hold down imports. Moreover, realigned exchange
rates, more attractive local producer prices, and the
like also help reduce balance-of-payments pressures.
A review of country performances suggests that im-
port constraint associated with adjustment programs
played a major role in Ivory Coast and South Africa
(1983) as well as Togo (1981-83). External debt relief
or rescheduling obtained as an adjunct to IMF-
supported programs also contributed to balance-of-
payments improvements. Malawi, Niger, and Sierra
tion.
Performance Under IMF-Supported Programs:
A Functional Perspective
In viewing the performance record under IMF-
supported programs, it is useful to take a functional
perspective. In making such a review, payments, price,
and production profiles capture the impact Fund
programs have had
Balance of Payments. The balance-of-payments re-
cord since 1978 for Sub-Saharan countries with IMF-
supported programs shows that the programs have not
resolved the balance-of-payments problems of the
region. They have, however, clearly limited the deteri-
oration that otherwise would have occurred, if nothing
else than by reducing import demand. In 1979, the
best year for balance-of-payments performance with
IMF-supported programs, 56 percent of the African
program countries showed improvements as measured
by changes in their gross international reserves.
The improvements for individual countries reflected a
variety of factors, some of which were not connected
with their programs. Examining balance-of-payments
performances for calendar years that were preceded
by an IMF-supported program, we found that im-
provements in crude oil output and prices were largely
responsible for the gains of Congo in 1979 through
1981, and Gabon in 1980. Rising export prices for tea
played a role in all gains recorded by Kenya since
Leone in 1983 are examples of this.
Inflation. The performance of the Sub-Saharan coun-
tries in reducing their inflation rates under IMF-
supported programs has been mixed. According to
country statistics, the two best years were 1978 and
1981. In 1978, six of 10 program countries had lower
inflation rates; in 1981, 13 of 20 countries had similar
results.
While austerity measures associated with Fund pro-
grams helped hold down demand, IMF economic
surveys of Sub-Saharan countries suggest that exter-
nal factors have also been important in curbing
inflation. For example, Ivory Coast's reduced infla-
tion rate in 1981 was attributed by the IMF to both
the government's stabilization policies and reduced
imported inflation from industrial nations. Reduced
inflation in Central African Republic from 1980 to
1983 was caused not only by lower domestic purchas-
ing power but also by increased illicit and cheaper
import trade and by the lagged effect of price controls
in France, the country's largest trading partner. In
some cases, statistical factors played a role. In Zaire
and Zambia, falling export unit values for copper in
1981 were largely behind reduced inflation rates
because copper loomed large in the basket of goods
used in computing the GDP deflator, the price index
for total output.
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Economic Growth. The economic growth targets in an
IMF-supported program are near-term goals consis-
tent with the program's major objective of achieving
balance-of-payments viability. The program is, how-
ever, expected to create favorable conditions for long-
term economic growth.
Moderate Less
Success Successful
On the basis of IMF and country economic data, we Central African Republic
conclude that most improvements in the economic Congo ?
growth of program countries to date have been the Equatorial Guinea ?
result of factors other than the programs themselves. Ethiopia
Given the spotty performance in meeting targets and Gabon ?
the brief period most programs have been in effect, Gambia, The ?
this is not unexpected. Looking at the growth perfor- Ghana ?
mance of Sub-Saharan Africa, we note that agricul- Guinea
tural production, influenced largely by weather, pro- Ivory Coast ?
vided the stimulus for most gains, particularly Kenya ?
because the austerity programs tended to curtail Liberia
public investment, an important engine of growth in Madagascar ?
the region. Agriculture accounted for improved eco- Malawi ?
nomic growth in Malawi (1983), Mali (1982), Mauriti- Mali ?
us (1981-82), Somalia (1981), Zambia (1983), and Mauritania ?
Zimbabwe (1981). In Malawi the recovery of the Mauritius ?
previously depressed construction sector also aided the Niger ?
economy. Senegal ?
Despite the positive role of factors outside the adjust- Somalia ?
ment programs, Fund involvement has had some South Africa ?
payoffs. Kenya's currency devaluations and producer Tanzania ?
price adjustments largely influenced the resurgence of Togo ?
agriculture and growth in 1981 and 1983, in our Uganda ?
judgment. At the same time, the government's deci- Zaire ?
sion outside the context of the IMF program to build Zambia ?
a strategic corn reserve also helped to boost agricul- Zimbabwe ?
tural production. In Zaire, the easing of restrictions
on diamond mining by private artisans as part of an
economic reform package made a favorable contribu-
tion to growth in 1983, according to an IMF apprais- have met with moderate success but remain vulnera-
al, although oil and mineral production also helped ble to external economic forces or natural disasters.
independently of the reform program.FOthers have had little positive results after years of
Performance Under IMF-Supported Programs:
A Country Perspective
One way of assessing the impact of both IMF finan-
cial involvement and conditionality in Sub-Saharan
Africa is by looking at performance on a country-by-
Table 4
Sub-Saharan Africa: Assessment of
Economic Performance Under IMF
Programs
effort of varying intensity (see table 4).
Moderate Successes. Ghana, Ivory Coast, Kenya,
Mali, Senegal, Togo, and Zaire are illustrative of the
countries that have been moderately successful in
country basis.
we believe that the economic adjustment programs
have to date yielded mixed results. Some countries
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achieve or maintain economic stability.
ever, and all require continued adjustment efforts to
bringing their payments imbalances back in line.
Most of these countries have had trouble at times
meeting the targets set in their IMF programs, how-
decline is still far off.
Ghana has been implementing an economic adjust-
ment program since 1982, with the support of the
IMF and Western donors, that calls for substantial
currency devaluation, reduced public expenditures,
gradual liberalization of price controls, and the reha-
bilitation of key economic sectors such as agriculture
and transportation. So far, all IMF conditions have
been met, and the US Embassy estimates that the
economic decline has been halted. We believe, howev-
er, that sustained recovery from a decade of economic
new arrangement.
Ivory Coast has been under an IMF program since
1980. After using its windfall earnings from the 1974-
78 commodity boom to launch ambitious development
projects, Ivory Coast was caught short for funds when
the boom ended. The initial objectives of the IMF
program were to cut both the public-sector and
current account deficits. Some improvement has oc-
curred-between 1980 and 1984 the current account
deficit was reduced from $1.3 billion to $500 million
and, because of curtailed public spending, the annual
inflation rate dropped from 15 percent to 4 percent.
Abidjan failed to meet December 1984 performance
criteria, however, and the IMF canceled its program
in February 1985. Negotiations are under way for a
Kenya has had problems in carrying out the almost
continuous IMF adjustment programs since late 1978,
with three of the six accords terminated for failure to
meet the IMF's conditions. Even so, Nairobi has
made substantial economic adjustment over the years.
The Kenyan shilling has been allowed to float on the
foreign exchange market after initial devaluations in
1981 and 1982. The government has liberalized the
import regime and the external payments system and
has imposed strong bud etar and credit restraints.
etween 1981 and 1984
Kenya slashed the inflation rate for consumer prices
in half to 10 percent, it reduced the overall budgetary
deficit as a percent of GDP from 10 percent to 5
percent over the same period, and it recorded overall
balance-of-payments surpluses in 1983 and 1984. The
IMF presently regards Kenya's current account defi-
cits, including that of about $500 million projected for
this year, as "sustainable." Mainly because of one of
the worst droughts in Kenya's history, however, the
economy experienced no economic growth last year,
and most observers expect it will be slow to rebound.
Mali's adjustment program with the IMF started in
November 1983. The country has made satisfactory
progress since then, according to IMF assessments.
Public-sector wages have been frozen since 1981,
government hiring has been curtailed, and Bamako is
liquidating some public enterprises, including the
national airline. External arrears are being reduced,
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reform, despite drought conditions that have substan-
tially reduced cereal production and the livestock
herd.
Senegal's economic adjustment efforts with IMF and
other external support date back to 1979. Through
1983, results were mixed because the programs were
not always maintained. Better results have been
achieved since then with a more rigorous application
of policy measures by the government. Dakar curbed
credit growth, applied strict controls to budgetary
expansion, instituted tax reforms, and introduced
pricing measures to promote agricultural production.
Despite being hit hard by drought, Senegal achieved 25X1
its financial objectives in the IMF-supported program
ending June 1984. Within 12 months, the fiscal
deficit as a percent of GDP fell from 8 percent to 5
percent. Dakar also reduced its current account defi-
cit from 14 percent to 11 percent of GDP. The overall
balance-of-payments deficit was halved. The country
is continuing its adjustment effort under a new 18-
month standby arrangement with the IMF from mid-
January 1985.
Togo has been receiving good marks since 1983 for its
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IMF, World Bank, and bilateral donors. Earlier pro-
grams were less successful. Present adjustment mea-
sures include the promotion of rural development, the
overhauling of tax and customs administration, re-
straints on public hiring, and a restrictive monetary
policy. Among the economic gains from its adjust-
ment program, Togo's 1984 current account deficit of
about $140 million was less than one-half that of the
1979 peak. The overall fiscal deficit as a percent of
GDP was smaller than the program called for. Lome
has curbed inflation; based on partial data, we believe
that prices may actually have fallen last year. The
IMF estimates that real economic growth was about 1
percent in 1984 after continuous decline since 19,80
but the economy remains affected by drought.
Zaire appears committed to carrying out its latest of a
series of IMF-supported programs that date back to
1977. The present program has included drastic ex-
change rate changes, tax reform, tight budget prac-
tices, and credit controls. The IMF regards the
program as successful so far. The inflation rate fell
from 76 percent in 1983 to an estimated 47 percent
last year, the 1984 current account deficit of $230
million was smaller than the program called for, and
payments on rescheduled external debt are on time.
Unresolved problems, according to local reports, in-
clude the restructuring of public corporations and the
rehabilitation of the agricultural sector.
Among other countries maintaining adjustment pro-
grams with moderate success, Malawi has sustained a
rising growth rate and falling inflation in recent years.
Madagascar's performance has been favorably viewed
by the Fund, although debt service problems remain
unresolved.
Less Successful Countries. Liberia, Tanzania, and
Zambia are among the countries that have been less
successful with their adjustment programs. Liberia
has been receiving almost uninterrupted IMF support
from 1979; Zambia has had four IMF programs from
April 1978. Tanzania has had one partially completed
program since 1980 and has been implementing some
adjustment measures as groundwork for a new IMF
program yet to be concluded.
Liberia's economy has been in an almost constant
crisis for several years.
the government has been faced with huge debt service
payments, a burdensome wage bill because of a
doubling of the public-sector minimum wage in 1980,
and weak markets since 1982 for the major exports of
iron ore, rubber, and timber. Monrovia had achieved
some degree of success in its adjustment efforts by
June 1984 through measures such as salary and hiring
freezes, new taxes, and improved debt management.
The annual inflation rate had fallen to 2 percent,
external arrears had been eliminated, and an econom-
ic growth rate of 1 percent had been achieved after
four years of decline. The country's precarious finan-
cial position, however, has worsened considerably
since mid-1984. There have been serious revenue
shortfalls, partly because of a diminished tax collec-
tion effort, and substantial unbudgeted expenditures.
External arrears have been accumulating once again,
and funds earmarked for debt service and essential
imports are being diverted to meet other current
expenditures such as salaries, according to Embassy
reporting. The IMF program has been suspended
since December because of Monrovia's failure to
make repayments to the Fund. Economic assistance
from bilateral sources, the European Community, and
the World Bank has been held up as a result.
Tanzania, in our judgment, has met with scant suc-
cess in its adjustment efforts. The economy has been
hurt by high oil prices, drought, and weak prices for
coffee exports. More important, the IMF concludes
production has been hampered by low official prices
paid to agricultural producers and by an economic
development policy that has nationalized key econom-
ic sectors, including wholesale marketing and trans-
portation. The country has been without an IMF-
supported program since an existing arrangement-
made before hostilities with Uganda disrupted eco-
nomic conditions-expired in 1982. Some economic
adjustment measures have been implemented and
reform measures last year included a currency devalu-
ation and higher producer prices for staples such as
coffee, cotton, and tobacco. We believe these mea-
sures have been too little and too late. The govern-
ment has not extensively dismantled its network of
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shown negative growth each year since 1980.
money-losing public enterprises, and the economy has
its dependency on copper mining.
Zambia's economic adjustment efforts have been
stymied by a continuous decline in the purchasing
power of copper exports, which have accounted for
about 94 percent of the country's total exports since
1980. The resulting shortage of foreign exchange has
hampered mining production, budgetary deficits esca-
lated through 1982, and the government has depended
heavily on domestic banks and the accumulation of
substantial arrears on its indebtedness to help finance
its operations. The present adjustment program calls
for repeated currency devaluations, reduction of ex-
ternal payments arrears, tax reform, and a restrictive
monetary policy. Despite reductions in the current
account deficit since 1981, the financial situation
remains serious, in our view. We do not expect a
significant economic turnaround until copper prices
recover. Over the longer term, we expect the Zambian
economy to remain unstable until it diversifies from
products.
Obstacles to Successful Adjustment
Sub-Saharan African countries have faced several
internal and external constraints to implementing
economic adjustment programs successfully. Most
countries have had to contend in recent years with
poor weather conditions, which restrict the agricultur-
al supply response to adjustment programs. The pro-
tracted drought in Sub-Saharan Africa has adversely
affected practically every country with an IMF-
supported adjustment program, especially Central
African Republic, Sierra Leone, Niger, and Togo.
Because of the serious setbacks to agriculture, these
countries face bleak economic prospects even with
adjustment programs in place. Externally, the success
of adjustment programs has been highly influenced by
capital inflows from sources other than the IMF, not
always available in predictable amounts, and on the
weak demand for exports of nonagricultural primary
IMF reviews of particular adjustment programs in
Sub-Saharan Africa indicate that at least some of the
fiscal and monetary failures under the programs are
attributable to the countries themselves. Many coun-
tries have had difficulty in meeting the fiscal and
monetary targets of the programs, partly, we believe,
because of their fears of possible adverse political
consequences from slashing government expenditures.
Regardless of the reason, absence of proper financial
controls was, according to the IMF, largely the cause
of Kenya's expenditure overruns in 1980-81. Slow
action in reorganizing money-losing state enterprises
has impaired IMF-supported programs in Equatorial
Guinea and Kenya. The inability of the Central
African Republic, Congo, and Ivory Coast to imple-
ment fiscal cutbacks also caused these countries to
fail to meet performance criteria.
The Political Fallout
The governments of Sub-Saharan countries have, on
occasion, encountered internal opposition to economic
adjustment programs that have been implemented
with or without IMF support. The opposition has
tended to come from urban-based groups because
economic adjustment packages attempt to redress the
less favorable treatment of rural producers by African
governments. According to US diplomatic reporting
and recent studies:
? In Ivory Coast, where an IMF-supported adjust-
ment program has been under way since 1981,
teachers organized a strike in 1983 against reduced
housing subsidies, and elements of the General
Union of Workers attempted to block the govern-
ment's price increases on certain goods and public
services in early 1984.
? In Liberia, an announced increase in rice prices in
1979 triggered a violent demonstration against the
Tolbert regime.
? In Mali last year the national trade union federa-
tion, one of the constituents of the country's only
political party, publicly expressed opposition to the
adjustment program, particularly the restructuring
of government corporations.
? In Zambia, the Congress of Trade Unions threat-
ened in July 1984 to boycott a national conference
on the economy unless the government rolled back
an announced 20-percent increase in cornmeal
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prices. Later in the year, Zambian National Provi-
dent Fund workers struck twice in the aftermath of
a 70-percent price increase for bread and in protest
against generally worsening economic conditions
None of the price increases was canceled
According to academic studies, an additional source
of pressure has come from the fact that austerity
measures cut into the large development spending
programs that have been used in the past to buy
political favor and maintain internal allegiance. Nu-
merous examples exist. Among the more infamous of
the large investment schemes are the Inga Shaba
dams and the 1,800-km power transmission line in
Zaire. This $2 billion project was designed to.
strengthen the dependence of the copper-rich Shaba
Province on other parts of the country and so discour-
age separatist tendencies. Zaire was by no means
alone in making costly and questionable investments.
In the early 1970s, when world sugar prices were
high, the government of Ivory Coast decided to build
a series of 10 (later scaled down to six) sugar-
processing plants in the north of the country. As with
Zaire, the purposes of this venture had strong political
overtones: to provide the relatively poor north of the
country with an employment- and income-generating
industry to achieve national self-sufficiency in sugar
production and to expand and diversify exports. Sugar
prices collapsed shortly after the investments were
begun, and the cost to produce the new sugar turned
out to be well above the world prices. Perhaps the
most visible and sustained foreign exchange spending
binge in the whole of Africa has been that of Nigeria.
Not only were a host of ambitious investment projects
undertaken with oil revenues, including a new capital
and what may become the world's most expensive
steel mill, but revenues were allocated automatically
to governors of Nigeria's states for their use with little
accountability or control.
As a counter to internal pressures against adjustment,
country leaders also have to consider the pressure
brought by foreign governments that increasingly are
linking their own support to adoption of IMF-support-
ed adjustment programs. This new element comes
after years of official economic assistance based on
grants and project loans with no economic adjustment
conditions. Sorting through these pressures has been
by no means easy. In Ghana, for example, President
Hilla Limann resisted loan arrangements with the
IMF involving economic policy conditions while pro-
tracted negotiations took place in 1980 and 1981. His
successor, Flight Lieutenant Rawlings, apparently
recognized the harsh realities of economic chaos and
the inability to obtain additional bilateral funding
without economic adjustment-Ghana has had two
standby arrangements with the IMF since mid-1983
and has been vigorously applying the economic policy
measures that Limann opposed a few years earlier.
In some other countries, political concerns have de-
layed reaching any consensus with the Fund:
? In Nigeria, despite the country's serious financial
position, the military administration maintains an
anti-IMF attitude as suggested in the published
statements of Head of State Buhari and Chief of
Staff, Supreme Headquarters, Idiagbon. Senior civil
servants in the government, however, feel that even-
tually Nigeria will have to turn to the IMF, accord-
ing to Embassy reporting
? In Tanzania, IMF negotiations since 1980 on a
standby arrangement have been particularly diffi-
cult because of the resistance of President Nyerere
to the proposed economic reform. Having commit-
ted himself since 1967 to an economic development
philosophy of African socialism, Nyerere cites the
political risks of retreating from that position, ac-
cording to US Embassy reporting.
Even where programs are in place, resistance remains.
For example, in Kenya, where an IMF-supported
program has been producing positive results, Presi-
dent Moi has protested US and World Bank condi-
tionality recently while asking, at the same time, for
more US economic aid.
Outlook and Implications
We expect the substantial IMF involvement in eco-
nomic adjustment programs in Sub-Saharan Africa to
continue for at least several more years. The countries
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with serious balance-of-payments problems cannot
avoid IMF financial support because they are no
longer able to finance their current account deficits
with bilateral official financial inflows as they did in
the past. Moreover, we can see little prospect that
industrial-country aid donors such as the United
States, the United Kingdom, and West Germany will
ease their insistence on IMF-supported economic re-
form programs as a condition for continued economic
We do not expect the increased reliance of Sub-
Saharan African countries on IMF support to put any
financial pressure on the Fund. The IMF quotas of
these countries, which broadly limit the funds they
may borrow, are only 20 percent of the quotas for all
nonoil LDCs combined. Within the African group,
Nigeria excepted, there are no relatively large trou-
bled economies like Argentina, Brazil, India, and
Mexico with the potential for $1 billion IMF loan
packages. In addition, the use of IMF resources by
non-African LDCs will probably diminish with the
positive impact of economic recovery in industrial
countries on their balance of payments, thus freeing
up resources for the hard-pressed African economies.
We believe that the Sub-Saharan countries face large
current account deficits for the rest of the decade and
will remain vulnerable to fluctuations in their current
account positions. The large current account deficits
will continue because of the likelihood of weak export
performance, particularly from an agricultural sector
buffeted by drought and volatile foreign demand for
minerals, and the certainty of continued dependence
on food imports for many years to come
Over the longer term, we do not see the African
countries as able to shift significantly from their role
of producers and exporters of primary products. Near-
ly all-with the possible exception of South Africa-
lack the potential for more diversified investment in
processing and manufacturing on a scale that would
make them competitive internationally.
The longer term economic outlook for those remain-
ing dependent on primary products is bleak. The
potential exists for a long-term fall in the prices of
some of Africa's primary export commodities because
of technological advance. For example, the develop-
ment of new production techniques allows for the use
of cheaper raw materials or synthetics in place of
rubber and a number of metals. Fiber optics could
largely eliminate the use of copper wire in telecom-
munications, which would have a severe impact on
Africa's two largest copper producers, Zaire and
Zambia. Africa's weakened economic condition also
will limit its ability to capitalize on such potentially
advantageous conditions as improved markets for its 25X1
products. Deterioration of existing facilities will prob-
ably erode the region's capacity to increase production
and to move larger volume through the transport
system. Favorable world conditions would help Africa
only minimally, in our judgment. Should the global
environment turn negative, it would have a deep and
longlasting impact because of the region's lack of
economic, political, and social resilience. Further-
more, we believe that, as other regions move rapidly to
acquire increasingly advanced technology, the gap
between Africa, already the world's poorest region,
and the rest of the world will continue to grow. F__1 25X1
Given the region's current economic conditions and
longer run outlook, the United States may be asked to
play a major role in the additional external financing
that the Sub-Saharan African states will require. This
will probably take the forms of special funds for Sub-
Saharan Africa, increased financial resources for
multilateral financial institutions including the IMF,
and higher levels of bilateral economic assistance.
Given the dimensions of the region's economic prob-
lems, even a well-meaning response is likely to fall
short. This in turn will only increase the complexity of
dealing with Africa in the years to come.
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Appendix A
The IMF Experience:
Selected Case Studies
This appendix illustrates the range of African experi-
ence with the IMF by examining the implementation
of economic adjustment programs in four countries.
The Gambia represents a small African economy,
almost totally dependent on peanut production, that
has been implementing IMF-supported programs for
several years with modest success. Ghana illustrates a
country with markedly different economic policies
and performance before and after IMF programs.
Kenya is a relatively large African economy that has
been receiving IMF support for several years with
initial failures and later successes after persevering
with economic adjustment. Tanzania typifies resis-
tance to IMF programs and a failed economy after
years of strong bilateral economic assistance.
The Gambia has had four standby arrangements with
the IMF during 1978-84-including a one-year
arrangement begun in May 1977-with moderate
success. Although Banjul departed from some pro-
gram targets, IMF loan commitments under three of
these standbys were fully drawn. The fourth arrange-
ment was canceled in May 1985 for failure to meet
IMF performance criteria.
Background
After several years of stability, The Gambia's econo-
my started to deteriorate in 1975-76.' Substantial
government wage increases granted in mid-1975 con-
tributed to a building up of demand pressures over
time, with an adverse impact on the current account
and on price trends. At first, increases in capital
inflows helped finance the widening current account
deficits. In 1977-78, the country's external position
became more serious as a severe drought adversely
affected agricultural production and exports. The
worsening current account position in this period was
not fully compensated for by capital inflows, and
The Gambia: IMF Standby Arrangements
1978 Standby arrangement for $3 million for
period 18 May 1977 to 17 May 1978. Fully
drawn. F
1979 Standby arrangement for $2 million for
period 2 November 1979 to 1 November
1980. Fully drawn.
1982 Standby arrangement for $19 million for
period 22 February 1982 to 21 February
1983. Fully drawn.
1984 Standby arrangement for $13 million for
period 23 April 1984 to 22 July 1985.
Canceled in May 1985.
balance-of-payments financing problems soon arose.
The Gambia's balance-of-payments position since
then has been largely affected by the impact of
weather on agriculture
Economic Adjustment Programs
The Gambia's economic adjustment programs are
largely determined by the country's five-year develop-
ment plans that have been implemented since 1975.
The country had mixed success with the 1977-78 and
1979-80 standby arrangements. Although it attained
many objectives of the 1977-78 standby, the country
exceeded the prescribed ceiling on domestic credit. It
met all IMF conditions for the 1979-80 standby
arrangement.
The Gambia continued economic stabilization efforts
in 1981 and made substantial progress through 1983
in reducing external and internal imbalances because
of improved weather conditions and higher producer
prices. Real GDP grew by I1 percent in FY 1981/82
and by 13 percent in FY 1982/83.
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Table 5
The Gambia: Selected Economic Data a
1977/78
1978/79
1979/80
1980/81
1981/82
1982/83
1983/84b
Current account deficit c
(million US $)
57
Change in gross reserves d (percent)
8
-96
400
-40
200
-67
-38
Inflation rate a (percent)
I
10
10
5
7
-3
13
GDP growth rate (percent)
0
16
-10
6
11
13
0
a Fiscal year ending 30 June.
b Estimated.
c Goods, services, and private transfers.
d Calendar year.
Performance of GDP deflator.
The Gambian authorities failed to continue the pro-
gram's policy prescriptions after the expiration of the
1982-83 standby, and the drought returned, causing
GDP growth to stagnate in FY 1983/84. Public
revenues-based largely on import duties, income
taxes, and levies on peanut production and sales-
declined with the downturn in economic activity,
causing the authorities to increase their borrowing
from the banking system to cover the shortfall.
The partially completed and now canceled 15-month
standby arrangement for the period ending July 1985
was intended to correct the worsened economic situa-
tion. Its policy prescriptions included a 25-percent
devaluation of the dalasi and increases in producer
prices, fertilizer prices, and charges by public enter-
prises. Some adjustment measures were taken before
the standby arrangement started. To stimulate pro-
duction, Banjul raised retail prices for rice by 14.6
percent in February 1984. To encourage saving, it
increased interest rates on savings and time deposits
by 2 percentage points the same month. It also
improved controls over government expenditure.
Despite the vigorous application of economic adjust-
ment measures, The Gambia failed to meet all the
June 1984 performance criteria pertaining to credit
expansion and external arrears. The IMF has regard-
ed this failure as partly beyond the control of the
Gambian authorities. For example, delays in process-
ing the peanut crop for export because of the need to
divert transportation to distribute drought relief de-
layed export sales. In addition, Banjul did not receive
expected economic assistance funds from abroad on
time. The repercussions from the setback in peanut
harvesting fatally compromised the IMF arrangement
because the fiscal targets of the program were mainly
based on the estimated harvest. The IMF suspended
the arrangement in February 1985 because it believed
the targets would no longer be met and because The
Gambia had incurred arrears of payments to the Fund
because of financial pressures.The Gambia has since
made the required payments to the IMF, but the
standby arrangement was canceled in May.
Economic data for the first half of 1984 suggest that
the recent economic downslide in The Gambia has
been halted, but The Gambia's deep-rooted economic
and financial problems clearly require continued
IMF-supported programs to keep the economy on an
even keel. The government has experienced no adverse
political repercussions in implementing its economic
adjustment programs.
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Table 6
Ghana: Selected Economic Data
Current account balance a (million US $)
Change in gross reserves (percent)
Inflation rate c (percent)
GDP growth rate (percent)
a Goods, services, and private transfers.
b Estimated.
c Performance of GDP deflator.
adjustment programs.
-109
41
-54
-508
-192
-294
-230b
76
4
-31
-23
-2
1
107
73
39
46
90
21
110
48b
8
-3
0
-2
-7
1
3b
even keel. The government has experienced no adverse
political repercussions in implementing its economic
Ghana has entered into three standby arrangements
with the IMF since 1978 to support its economic
adjustment programs, but it had achieved little suc-
cess until last year. Under the first of these arrange-
ments, made in 1979, approximately $40 million (of
an allocated $68 million) in IMF funds were drawn
before the arrangement petered out in the aftermath
of a military coup in the same year. Accra met all
performance criteria for the second arrangement in
1983-84. A third arrangement quickly followed and
extends through December 1985.
ary fiscal and monetary policies.
Background
Ghana's economic situation worsened substantially in
the late 1970s under the cumulative pressures of large
budgetary deficits, rapid expansion of the money
supply, and the maintenance of a fixed exchange rate
despite high rates of inflation. Supply shortages at-
tributable to intermittent drought and to official price
controls that offered inadequate incentives for produc-
tion aggravated the inflationary impact of expansion-
These conditions eventually generated a loss of inter-
nal and external confidence in the economy. Capital
inflows fell off and, with declining export earnings,
indirectly caused import volumes to fall. Shortages of
imported machinery and raw materials led to further 25X1
declines in production and to deterioration in the
country's infrastructure. Caught in this downward
economic spiral, the Ghanaian economy has yet to
recover. Consumer prices are presently 17 times high-
er than they were in 1978. Cocoa production, the
mainstay of the economy, is 40 percent lower.F_ 25X1
Economic Adjustment Programs
The Ghanaian authorities started an economic stabili-
zation program in mid-1978 and entered into a one-
year standby arrangement with the IMF in 1979. The
overthrow of the Acheampong military administration
in July 1979 by a military faction headed by Flt. Lt.
Jerry Rawlings and the near anarchic conditions that
followed disrupted the stabilization program. Rawl- 25X1
ings left office after general elections the same year,
but his successor, President Hilla Limann, felt re-
stricted in the economic measures he could implement
by fear that Rawlings would seize power again
Ghana and the IMF were involved in protracted
negotiations on a new standby arrangement for the
entire period of Limann's administration, from 1979
to 1981. Ghana initially opposed a devaluation of the
cedi, one of the IMF's conditions for the standby,
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1979 $68 million for period 10 January 1979 to
9 January 1982. Arrangement abandoned by
Ghana after a partial drawing and in after-
math of 1979 military coup.
1983 $255 million for period 3 August 1983 to
2 August 1984. Fully drawn.
1984 $185 million for period 27 August 1984 to
31 December 1985. Partially drawn and still
active.
despite the extraordinarily high rate of inflation and
an official rate 15 times greater than the black-
market exchange rate for the cedi. The Ghanaian
authorities were apparently mindful that a currency
devaluation had been commonly believed to have been
the reason for the country's initial military takeover in
1966 as well as for the coup in 1979 and that
Rawlings had earlier declared himself against devalu-
ation. In dealing with the IMF condition of higher
prices for cocoa producers, Limann faced a tricky
issue. The higher prices would benefit principally the
Ashanti who were not among his ardent political
supporters. In addition, he opposed an initial IMF
recommendation to pass through to consumers the
higher petroleum prices that would result from the
currency devaluation on the grounds that this policy
measure would destabilize his government. As
Ghana's economic downturn accelerated, Rawlings
ousted Limann in December 1981.
Although the new Rawlings regime initially had no
economic reform program, the threat of a counter-
coup by the Army because of the unabated economic
crisis induced the administration to adopt one. Ghana
resumed negotiations with the IMF and by October
1982 had agreed on all points except the size of the
currency devaluation. The authorities implemented
far-reaching adjustment measures in April 1983, fol-
lowed by an austerity budget in June, which together
set the stage for a $255 million, 12-month IMF
standby arrangement in August.
The economic adjustment measures adopted by Gha-
na in 1983 included depreciation of the foreign ex-
change rate by nine-tenths over a six-month period;
passing the full cost of imported crude oil to consum-
ers; and reducing external payment arrears of $600
million in April 1983 by some $100 million. So far, all
IMF conditions have been met.
Relatively slow responses on the supply side have
caused the Ghanaian authorities to implement a new
$185 million standby arrangement to cover the second
half of 1984 and the calendar year 1985. The program
calls for further devaluation of the cedi, the redeploy-
ment of redundant civil service personnel, an increase
in cocoa producer prices, and a further reduction of
the budget deficit as a percent of GDP. These are the
same measures that Ghana resisted three years ago.
Kenya achieved moderate success in its reform effort
last year after almost continuously implementing
IMF-supported programs under standby arrange-
ments since 1978. Three of five arrangements be-
tween 1978 and 1984 have been canceled but were
shortly replaced by new ones perceived to be more
consistent with the country's changing economic cir-
cumstances. Nairobi had problems in carrying out its
IMF-supported programs in 1981 and 1982, but
substantial adjustment has been made over the years
in domestic demand, the government's budget, and
the balance of payments. Kenya is continuing its
economic adjustment policies over the medium term.
Partly as a result, Nairobi's economic prospects are
better than average for Sub-Saharan Africa.
Background
Kenya registered strong economic growth at an aver-
age of 7 percent a year from 1963 to 72. The annual
inflation rate was only about 2 percent a year. The
country fell on hard times in the early 1970s as a
result of oil price increases, declining agricultural
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Table 7
Kenya: Selected Economic Data
Current account deficit a (million US $)
Change in gross reserves (percent)
Inflation rate b (percent)
GDP growth rate (percent)
a Goods, services, and private transfers.
b Estimated.
c Performance of GDP deflator.
735
579
1,006
798
575
294
240 b
-32
77
-22
-53
-8
80
3
3
6
11
9
14
16
Job
7
4
3
7
-1
4
Ob
productivity, an exploding population, and a stagnat-
ing manufacturing sector highly dependent on im-
ports.
Although rising prices for export crops in 1976-77
temporarily stimulated the Kenyan economy, its
structural weaknesses were fully exposed when coffee
prices weakened in late 1977 and when the onset of
drought threatened the country with famine and
forced an escalation in food imports. With the
drought, oil imports also rose sharply as hydroelectric
capacity fell. Kenya's economic problems were, com-
pounded by the breakup of the East African Commu-
nity in 1978 and by Tanzania's subsequent closing of
its border with Kenya, which seriously hampered
Kenya's exports in the region. Nairobi's finances were
further impaired by large military purchases, im-
pelled by security considerations, as unrest intensified
in neighboring countries.
Economic Adjustment Programs
Kenya did not begin to address its economic problems
seriously until late 1979. An earlier attempt under an
IMF Extended Fund Facility loan in 1975 had been
abandoned the same year when coffee export prices
rose. As the current account deficit worsened to $700
million in 1978, the Kenyan authorities first relied
mainly on public-sector borrowing and drawdowns in
international reserves to finance it. The late 1978
standby arrangement with the IMF, involving draw-
ings on Nairobi's first credit tranche, carried minimal
conditions and was fully utilized in January 1979. The
country next tried nonconditional borrowing on the
Eurocurrency market as a financing alternative. This
move swiftly proved unpalatable as Kenya was
charged a then sizable interest rate of 1.5 percentage
points above the London interbank offered rate
(LIBOR) on a $200 million loan in July 1979. Re-
treating from commercial financing options, Kenya
applied for a $158 million two-year standby arrange-
ment with the IMF that same month and finalized the
agreement in late August. Nairobi received a $55
million structural adjustment loan from the Interna-
tional Development Association in February 1980.
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Because of a violation of the IMF's loan conditions,
Kenya was unable to draw on the 1979 standby
arrangement when it attempted to do so in mid-1980.
The IMF ruled that the planned payment of export
subsidies by the Kenyan Central Bank instead of the 25X1
Customs Department was a multiple exchange rate
practice in violation of the standby. In any event,
since August 1979 Nairobi had been finding it diffi-
cult to meet the quantitative ceiling on bank lending
to the government.
A new two-year standby arrangement with the IMF
in 1980 was not a success. By mid-1981 Kenya had
deviated markedly from program targets. It incurred
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Kenya: IMF Standby and Extended Arrangements
1975 Extended arrangement (Extended Fund
Facility) for $82 million for period 7 July
1975 to 6 July 1978. Abandoned by Kenya
after rising coffee and tea prices helped
improve the balance of payments.
1978 Standby arrangement in the first credit
tranchefor $22 million for period 13 Novem-
ber 1978 to 19 August 1979. Fully drawn.F_
1979 Standby arrangement for $158 million for
period 20 August 1979 to 19 August 1981.
Unused and canceled, 14 October 1980, be-
cause of technical violation (multiple curren-
cy practice) of the original Letter of Intent.
1980 Standby arrangement for $314 million for
period 15 October 1980 to 14 October 1982.
Canceled 7 January 1982 after partial use
because of failure to meet certain perfor-
mance criteria.
1982 Standby arrangement for $167 million for
period 8 January 1982 to 7 January 1983.
Abandoned after credit ceiling violation and
uncertain domestic situation following coup
attempt in 1982.
1983 Standby arrangement for $188 million for
period 21 March 1983 to 20 September 1984.
Fully drawn.
1985 Standby arrangement for $84 million for
period 8 February 1985 to 7 February 1986.
Currently active.
substantial government expenditure overruns partly
because of inefficient controls and an unbudgeted 30-
percent increase in civil service salaries. Attempts to
rescue the arrangement proved futile, and it was
replaced by a one-year standby, effective January
1982. By mid-1982 this agreement had broken down
because credit ceilings were exceeded. Nairobi got
another replacement standby arrangement that ran
from March 1983 through September 1984. A 12-
month standby arrangement from February 1985
presently supports the economic adjustment effort.
Despite repeated failures of the Kenyan authorities to
meet IMF performance targets, the Kenyan economy
made some gains even on the basis of partially
concluded programs. Fiscal expenditure and the cur-
rent account deficit have declined as a percent of
GDP every year since 1980. The central government's
overall deficit as a percent of GDP has fallen from 9.5
percent in 1981 to 4 percent in 1984
A notable feature of Kenyan-IMF relations since
1978 has been the willingness of the Kenyan authori-
ties to follow IMF-supported programs in their eco-
nomic adjustment efforts. The IMF, for its part, has
been willing to renegotiate failed agreements. In the
process, the Kenyan Government has not yet sus-
tained any adverse political fallout from its longstand-
ing client relationship with the IMF.
Tanzania has not been successful in its economic
adjustment efforts. Since 1978 Tanzania has had one
two-year standby arrangement with the IMF, in 1980.
This arrangement was not fully utilized in the wake of
hostilities with Uganda. Much of Tanzania's econom-
ic policy measures since 1980 have been preliminary
to expected IMF-supported programs or have been
alternatives to the programs. For much of this time
the country has been involved in extended dialogue
with the IMF on economic reform while being sub-
stantially supported by bilateral economic assistance.
Despite being the largest recipient of economic aid in
Sub-Saharan Africa, having obtained about $2 billion
since 1970, Tanzania's economic performance has
been particularly disappointing, with only modest
prospects of recovery in the medium term. The World
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Table 8
Tanzania: Selected Economic Data
Current account deficit a (million US $)
Change in gross reserves (percent)
Inflation rate c (percent)
GDP growth rate (percent)
a Goods, services, and private transfers.
b Estimated.
c Performance of GDP deflator.
25X1
by the end of the decade.
617
492
674
501
615
388
441 b
-65
-32
-71
-5
-79
425
NA
15
7
8
14
9
8
llb
-4
3
4
-2
-3
-1
lb
Bank estimates that even with such a recovery Tanza-
nia can only expect to regain 1970 consumption levels
rainfall in 1980-81.
Background
Tanzania entered the 1970s with a relatively stYong
balance-of-payments position but received a major
setback in 1973-74 from drought and oil price in-
creases. The country had a brief respite from econom-
ic decline in 1975-76 when coffee prices boomed.
Since then, the Tanzanian economy has been deterio-
rating almost continuously, buffeted by the oil price
increases of 1979-80, the collapse of the East African
Community (1977), an expensive war with Uganda
(1978-79) that cost some $500 million, and poor
Structural changes in Tanzania's economy directly
linked to the country's development strategy have
been key factors in the economic dilemma. Tanzania
radically altered its economic development strategy in
1967 to stress African socialism with government
control of the means of production and widespread
rural development. Since 1967 the country has experi-
enced substantial growth in public-sector activity as
ownership of key areas of production was transferred
to public corporations. Agricultural exports stagnated
because official pricing policies reduced incentives for
production. Sustained expansionary fiscal policy in
the late 1970s led to increased government reliance on
bank financing to cover revenue shortfalls. Fiscal
policy expanded aggregate demand but created infla-
tionary pressure at the same time. Despite corrective
measures, the pattern of disappointing agricultural
production, weak export performance, and deficit
fiscal policies continues
Economic Adjustment Programs
With the collapse of coffee prices in 1977, a record
current account deficit of $617 million in 1978, and a
fall in official reserves by two-thirds the same year,
Tanzania was prepared by 1979 to embark on an
IMF-supported adjustment program. It agreed to
interim adjustment measures prior to an anticipated
standby arrangement. It devalued the Tanzanian shil-
ling by 10 percent and programed import licenses for
an almost 40-percent reduction in licensed imports in
real terms. In 1979, Tanzania drew on the balance
available in its first credit tranche at the IMF without
a standby arrangement, obtained a loan from the
Fund's Compensatory Financing Facility for export
earning shortfalls, and borrowed from the IMF-
administered Trust Fund for assisting poor LDCs.
The hostilities with Uganda prevented the country
from implementing the targets of the interim adjust-
ment program, however.
Negotiations between Tanzania and the IMF over the
economic program for the 1979 standby arrangement
soon reached an impasse as Tanzania resisted the
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IMF's proposals, which included a large currency
devaluation, reduced government spending, and relax-
ation of price and foreign exchange controls. Tanza-
nia regarded the proposals as being at cross purposes
with its development strategy, and,
Tanzanian officials who supported the IMF
program were viewed as aligned with the IMF instead
of Tanzania.
Tanzania successfully negotiated an IMF-supported
economic program involving a $230 million standby
arrangement in 1980. Before the launching of the
program, Tanzania implemented certain policy mea-
sures, which it expected the IMF to require, in an
attempt to avoid the appearance of the IMF dictating
policy changes. The government raised minimum
prices selectively and targeted an 80-percent reduc-
tion in its budget.
The 1980 adjustment program called for a ceiling of
some $230 million on additional government borrow-
ing and for a nearly 20-percent reduction in 1980-81
of external commercial arrears that had ballooned to
$240 million. It made no provision for an early
currency devaluation or for an overhaul of price and
foreign exchange controls. Still, after a one-time
drawing of $32 million, the standby arrangement
went in limbo when Tanzania exceeded the perfor-
mance criteria ceiling on arrears in October 1980 and
the credit ceiling in December of that year. In
addition, the economic scenario of the arrangement
was no longer valid because of the fallout of the
hostilities with Uganda.
In the course of several discussions between Tanzania
and the IMF in 1981 regarding a replacement stand-
by arrangement, they reached no agreement on eco-
nomic performance criteria or exchange rate policy.
As an alternative course of economic action, the
Tanzanian Government formulated a National Eco-
nomic Survival Program centered on explicit com-
modity export targets to increase foreign exchange
earnings and on strict control of government spending.
It achieved none of the targets of the Survival
Program.
Tanzania's latest economic adjustment program has
been a three-year structural plan for 1982-85. This
program avoids specific production and export targets
and places curbs on government spending and money
supply growth. There are no provisions for a currency
devaluation. The program assumes substantial draw-
ings on IMF and World Bank funds. These drawings
have not materialized because there is no IMF-
supported program in place. In addition, the substan-
tial bilateral economic aid from such countries as
Sweden, the Netherlands, West Germany, and the
United Kingdom that has helped to keep Tanzania
afloat over the years has become less available as
these supporters apparently recognize the need for an
IMF-supported program to promote Tanzania's
economic adjustment.
Tanzania and the IMF are still at odds regarding the
economic policy reforms required for IMF support.
The Fund's preconditions include a 60-percent cur-
rency devaluation, increases in producer prices, elimi-
nation of subsidies on inputs, and fiscal restraint
measures. Tanzania has responded with a 26-percent
currency devaluation in June 1984 and has raised
producer prices for coffee, cotton, tobacco, and ca-
shew nuts by as much as 55 percent. It has also
eliminated subsidies on fertilizers.
The policy measures adopted by Tanzania in 1984
imply that the 1982-85 structural adjustment pro-
gram has been modified to elicit IMF support. The
measures have not been sufficient to secure an IMF
endorsement, however. The Tanzanian economy lan-
guishes in the meantime, its economic performance
dubbed "a failure" by the World Bank
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Appendix C
Sub-Saharan Africa: Net Financial Flows Million US $
From the IMF a
Burundi
-4.1
12.3
-5.1
-4.9
-1.8
Cameroon
-5.8
-14.7
-16.7
-10.0
-3.3
13.4
7.2
-29.9
Cape Verde
Central African
Republic
-1.4
-3.1
1.9
16.4
2.0
5.8
0.2
21.8
Ethiopia
9.1
46.5
77.9
23.4
-19.2
-21.5
116.2
Gabon
12.5
9.7
-2.2
-8.0
5.3
17.3
Gambia, The
6.5
-4.5
2.1
10.6
16.2
-1.8
0.7
29.8
Ghana
-6.0
28.8
-12.6
-11.4
4.1
277.5
214.8
495.2
Guinea
-7.3
-1.8
-1.4
-5.2
12.5
5.0
1.8
Guinea-Bissau
1.0
1.4
2.8
-0.3
1.5
6.4
Ivory Coast
-30.2
15.9
387.6
127.4
179.4
14.0
694.1
Kenya
5.4
72.0
69.0
26.9
147.4
95.8
-12.1
404.4
Lesotho
2.2
2.2
Mali
-1.5
-2.3
3.8
-2.7
26.8
17.0
21.3
62.4
Mauritania
-1.2
16.5
4.0
16.7
-2.5
-9.2
24.3
Mauritius
36.2
45.5
67.2
24.8
18.3
-6.9
185.1
Mozambique
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Sub-Saharan Africa: Net Financial Flows
From the IMF a (continued)
Million US $
Somalia
7.8
30.5
35.5
50.7
-3.0
121.5
South Africa
-100.2
-310.1
-197.8
996.0
-53.4
334.5
Swaziland
0.2
4.7
10.7
15.6
Tanzania
-28.8
27.1
19.5
-12.3
-10.4
-20.3
-25.0
-50.2
Togo
-9.4
21.6
8.6
23.4
13.1
57.3
Uganda
-12.5
3.4
35.8
132.3
92.2
107.8
-17.1
341.9
Zaire
-12.1
-14.9
16.8
107.1
120.9
128.2
106.6
452.6
Zambia
186.3
95.2
7.8
367.9
-49.3
80.0
78.1
766.0
Zimbabwe
42.3
44.2
164.2
82.5
333.2
a Gross purchases minus repurchases (excludes transactions with
the IMF-administered Trust Fund). SDR values converted to US
dollars at period average SDR/$ exchange rates.
b Regional IMF totals adjusted for countries covered in this paper.
Country data may not add to totals shown due to rounding.
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Secret
Secret
Sanitized Copy Approved for Release 2011/04/13: CIA-RDP86T00589R000200210004-9