emmanuel tumusiime - mutebile : the global financial crisis and access to finance speech by prof. emmanuel tumusiime - mutebile, governor of the bank of uganda, at the afdb ministerial round table discussions, dakar, senegal, 12 may 2009. * i * * introduction the ministerial round table discussion this morning has articulated the key issues faced by african economies in the context of the global financial crisis and global recession. these discussions have provided a springboard for further reflections on the effects of the global crisis onto our economies. the global economic and financial crisis threatens to affect the key drivers ( i. e. technology, capital and labor ) of sustained economic growth via depressed prices of and demand for primary commodities and lower than anticipated foreign capital inflows and foreign direct investment ( fdi ). while the previous two decades witnessed sustained growth and macroeconomic stability in africa on the backdrop of reduced fiscal deficits and current account deficits, the global recession risks compromising our macroeconomic gains via the triple deficit problem of high fiscal deficits, high current account deficits and high private sector savings - investment gap. the issue, therefore, is whether or not this triple - deficit problem is temporary ( and therefore requiring short - term measures ) or permanent ( and therefore requiring major macroeconomic adjustment policies ). my discussion this afternoon will focus on the effects of the global financial crisis and access to financing in the african context. i will focus on three important issues : • is the international response well tailored to the different requirements of the african countries? • is the response commensurate to the challenges faced by the countries? • what additional measures should be considered by the mdbs to increase access to finance? the basic contours of the global financial crisis are by now well known. mr. alan greenspan, the former chairman of the federal reserve board called it a “ once in a century tsunami ”, born of a collapse deep inside the us housing sector and cascaded outwards leading to instability in financial markets and near stagnation of the real economy, and more recently, a recession. the global financial crisis has affected the private - public sector divide alike with the hit being taken by private firms leading to heavy revenue shortfalls for governments the world over. ii appropriateness of the international response to the different financing requirements of the african countries growth and sound macroeconomic policy considerations the imf projects the world economy to have experienced a severe recession caused by the financial crisis and

, uganda ’ s current account position has worsened from a surplus of us $ 204. 7 million in the first half of 2007 / 08 to a deficit of us $ 401. 0 million registered in the first half of the current financial year. with most african countries running current account deficits of 5 percent or more of gdp, vulnerability to swings in the various sources of external financing is unavoidable. the likely slow down in global trade poses challenges for the tax revenue authorities. a possible below - target performance is anticipated for fy 2008 / 09 leading to higher than anticipated fiscal deficits for uganda and other african economies. portfolio investment could also fall, as greater risk aversion may keep capital closer to “ home ”. exit of offshore investors in capital markets was observed in the latter part of 2008 leading to instability in the foreign exchange markets and decline in share values across africa. although fdi is historically more resilient to shocks, some decline is anticipated. in addition, access to international capital by african governments and businesses may come at higher interest rates on account of risk - aversion of lenders. though budget priorities of donor countries are expected to shift with some impact on donor flows and aid to african economies, the recent g20 summit in london went a long way in reassuring the world and especially africa on the key issues of financing by the advanced countries and multilateral institutions like the imf and the world bank. the rescue package put in place by the industrial countries, and the one trillion us dollar package may go a long way to reverse the global recession. possible policy responses include fast - tracking regional integration to increase exports within the regional, consolidation of export - oriented trade policy measures, as well as investing in infrastructure aimed at increasing domestic productivity and reducing domestic resource cost ratios. iv policy measures that could be considered by the mdbs to increase access to finance the main challenges facing many african economies relate to addressing acute shortages of financing, especially for long - term public investment programs, private investment, and export trade financing. addressing these challenges remains critical for both minimizing the impact of the global crisis and positioning the continent to take advantage of opportunities arising from the global economic recovery after the crisis. credit crunch although many african economies survived the initial impact of the financial crisis due to lack of direct exposure to the american sub - prime mortgage debts, their access to international capital has been severely curtailed. for example, in the case of uganda, several entities are reported to have repositioned