“In pretty much any budget in any country, you have a recurring aspect or portion to it which comprises salaries, commitments that have been subscribed, and there is not much that you can do about it,” Lagarde, International Monetary Fund managing director, told CNBC Africa.
“The discretionary portion of a budget is anywhere between sometimes as little as 10 per cent. I would say that if you have a 30 per cent portion that is discretionary, that is quite a lot of room to manoeuvre and to adjust in case of need.”
Lagarde however added that the level of development of a country was crucial to how far its budget could go.
In a country that needs significant infrastructure projects, a lot of social programmes would be required to further its development.
China has been a key development partner in Africa, with roughly 40 billion dollars having been channelled into various African countries.
“Foreign direct investment is clearly a source of significant development for countries in sub-Saharan Africa. It’s a matter of how hospitable the markets are, what the policies in place for foreign direct investment are,” Lagarde explained.
“There have to be multiple sources of investment. They can be intergovernmental agencies, and there are some that are doing quite a lot of work, that have historically invested heavily on the continent.”
China’s economic development has however been on the slowdown, which might have a ripple effect on its financing of developmental projects in Africa.
“I would not be concerned about the sudden slow growth in China. China is going to continue to grow anywhere between seven and eight per cent a year, which is really nothing like slow growth. It’s slower, for sure, and it’s a result of the global economy and the monetary policies here and there,” said Lagarde.
“Slower growth than previously observed in a country like China will have a secondary effect in countries with which China trades, [or] purchases commodities from. It’s a question of managing that relationship, and making sure that the economies that are in close relationship with emerging markets prepare for that, have the right buffers.”
Sub-Saharan markets could also be made vulnerable due to the start of federal tapering in the United States, but Lagarde explains that the US economy is in fact doing better, according to a Federal Reserve’s observation.
“The Fed has always said we will begin tapering when we feel that the US economy is growing, is stable, and is heading in the right direction. This is a positive. The US economy, the largest in the world, is doing better, as numbers are showing, and as the Fed is acknowledging by starting its tapering. It’s a good sign for the global economy, therefore it’s a good sign for sub-Saharan Africa as well,” she said.