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Western financial crisis to affect Africa's economic growth

The current financial crisis affecting western countries is likely to affect Africa's economic growth if the continent does not look for alternative markets, a top financial official warned here on Tuesday.

Ugandan Finance Minister Ezra Suruma told his counterparts from the Common Market for Eastern and Southern Africa (COMESA) members that Africa's exports to the United States and Europe are likely to be affected because the people there will have low purchasing power.

"We have to find alternative markets for our products," said the minister. He added one option is to increase their exports to Asian countries, which hopefully will not be deeply affected. Africa, through the African Growth Opportunity Act (AGOA) and the Everything But Arms, exports its products to the United States and the European Union markets tariff and quota free respectively.

According to official figures, Africa's exports to the United States under AGOA tripled to 67.4 billion dollars in 2007. Suruma told the ministers who were attending a one-day annual meeting of the region's bank, Preferential Trade Area Bank, that the crisis has proved that the concept of capitalism has to be revised.

"Capitalism is not likely to be the same again; the role of regulation by governments is perhaps inevitable. We should brace ourselves for a new world order," he said.

The minister however said as governments revise capitalism, the concept of free market economy should not be totally abandoned.

Mohit Dhoorundhur, chairman of the Board of Directors of the bank, said the impact of the crisis on African economies is still unpredictable though some analysts have said that the continent's financial markets do not have the depth and width of the west to be affected.

"The challenge for the bank, in member states, in fact for the whole of African region is to recognise the need for change and be determined to undertake rapid reforms while the crisis is still at a distance," he warned.

Kampala, Xinhua


Nepali central bank announces tight monetary policy

Nepal Rastra Bank (NRB), the central monetary authority of the country, said Tuesday it is adopting a cautiously tight monetary policy designed to achieve price stability without hurting growth prospects.

The monetary policy for the Fiscal Year 2008/09 unveiled Tuesday acknowledged that rising prices was the biggest monetary challenge, and it has vowed to curtail it by taming monetary expansion.

In this regard, the central bank has raised the bank rate, the interest it charges on loans it extends to commercial banks, by 25 basis points to 6.5 percent.

Likewise, the newly unveiled monetary policy has also increased the Cash Reserved Ratio (CRR) on local currency deposits to 5.5 percent from the existing 5 per cent. The change in the CRR rate is expected to mop up 1.92 billion Nepali rupees (some 25.9 million U. S. dollars) worth of liquidity, stated the policy. The monetary policy has raised a red flag at unnaturally rising housing and share prices, and warned that they might trigger a serious financial crisis if their prices start dropping.

As the banking system has made huge investments in real estate and the share market, the monetary policy has noted that any reversal in the excessively rising prices could put the entire banking system in trouble. The newly announced budget by the government has also required house, land and vehicle buyers to disclose their sources of income if the transaction exceeds a certain amount.

The new policy predicts that average annual inflation will remain at 7.5 percent in the current fiscal year. It aims to achieve a surplus balance of payment worth 12 billion rupees (some 162 million dollars) in order to ensure adequate foreign exchange reserves to pay for a half year's imports. The policy has also announced that the central bank will establish a credit rating agency and arrange to provide certificates to those having a good credit rating.

Likewise, in order to promote competitiveness of export- oriented industries, the policy has reduced the export refinance rate to 2 percent from 2.5 percent. Commercial banks will not be allowed to charge interest at a rate higher than 5 percent on such loans.

Kathmandu, Xinhua

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