African countries urged to transform economies

Accra, Sept 21, GNA - Mr Lionel Van Lare Dosoo, a Deputy Governor of the Bank of Ghana, on Wednesday reiterated the need for structural transformation of the economies of African countries to break the reliance on few export commodities.

In a keynote address at a two-day workshop on capital flows and current account sustainability in African economies, Mr Dosoo said wild fluctuation in commodity prices on the world market had rendered most African economies vulnerable to external shocks and opened them to incurring huge deficits on their current accounts. He said improving on the structure of exports would enable African economies to derive gains from trade to enable them to manage and sustain their current accounts position.

The Economic Commission for Africa (ECA) organized the workshop to provide participants an understanding of how capital flows could enhance the sustainability of current accounts.

Studies conducted by the ECA indicated that 34 out of 44 countries reviewed last year experienced current accounts deficit of about five per cent to Gross Domestic Product.

While most countries in transition saw current accounts deficit as a reflection of the strength of their economies, Mr Dosoo said a prolonged deficit could, however, spell doom for an economy when it generated an unsustainable imbalance between national savings and investment and the accumulation of debt.

He said because most African economies were currently pursuing agenda of sustainable growth, there was the high possibility of current accounts deficit.

"What is important is whether these deficits reflect a dangerous and unsustainable imbalance between national savings and investment and the accumulation of debt," he said, and stressed the need for prudent macro-economic policies.

Mr Dosoo, therefore, asked economic managers and researchers to strike a balance between what constituted an optimal current account deficit in order not to trigger financial crises in their economies. The Deputy Governor also urged African countries to take advantage of capital flows into their countries either because of debt relief or prudent economic policies.

He underscored the importance of remittances, saying they represented a stable form of capital flows into the economy and urged policy makers to evolve policies that would attract nationals resident abroad to channel their moneys through the financial system. Mr Augustine Fosu, Director of Economic and Social Policy Division of ECA, called on African countries to foster reforms in order to attract increased Foreign Direct Investment inflows into their economies.

He said prolonged current accounts deficit could impact negatively on domestic savings and crowd out the private sector from accessing credit.

Mr Fosu urged African countries to take bold initiatives to reduce current accounts deficit so as to propel their economies towards meeting the Millennium Development Goals. 21 Sept. 05