State Bailouts in an Era of Financial Crisis ... - Global Trade Alert

emerging and developing economies has been more muted, except for economies in central and
Eastern Europe. Developing countries also confronted the crisis with sharply reduced deficit and
debt levels than they had at the start of the decade. Stronger fiscal positions and lower debt created
room for an active response to the crisis, which helped lessen the impact and duration of the
downturn compared with past crises.
As global growth is restored and countercyclical fiscal support is withdrawn, budget deficits should
decline gradually with debt stabilizing and then trending down. However, improvements in fiscal
balances brought about by the restoration of growth will not be sufficient to stabilize public debt
levels and further adjustment. Nevertheless, most African governments have little capacity to fund
policy interventions to address the crisis. Effective economic governance continues to be lacking in
many countries, and responses are projected to be restrained by the relative unavailability of foreign
reserves, insufficient budgetary margins for enacting fiscal stimulus packages, and restrictions on
incurring further external debt in countries that have benefited from international debt relief.
African countries used measures spanning from stimulus package to specific targeted measures and
budget revision. Although, it is quite early to assess the effectiveness of the measures taken, it could
be argued that these measures provided some kind of cushion to the countries that adopted them. It
resulted from the analysis that African countries need to be pro‐active to prevent their economies to
suffer a full blow of external shocks. It should also be ensured that bailout strategies included exit
strategies that are time bound and satisfy certain pre‐conditions that must be fulfilled Moreover
African countries need to put the existing RECs to play in dealing with these external shocks rather
than engaging in solitary actions.
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