The impressive growth of many African economies during the past decade was highly dependent on booming commodity markets and strong capital inflows, often related to commodities. With commodity prices falling and market expectations pointing to little reversal in the foreseeable future, macroeconomic policies have been put to a serious test. Growth has already weakened substantially in commodity exporters. The fiscal space for pursuing countercyclical policies has largely been eroded since the onset of the Great Financial Crisis (GFC) - except in some commodity exporters that had managed to build up financial buffers. Even such precautionary policies provide only temporary insulation. Should the commodity price decline be of a long-term duration, as projected by most analysts, further measures would be needed. Moreover, access to external financing has become more difficult and costly, and African countries have drawn down their external deposits with international banks. Meanwhile aid flows from advanced countries have been constrained by the currently weak economic situation. This suggests that African countries will have to rely primarily on domestic policies and financing in dealing with the slowdown in growth.
JEL classification: O55, Q02, Q33, Q43