Economic growth in sub-Saharan Africa has largely returned to pre-financial crisis levels but monetary tightening has failed to keep pace, with rising fuel and food prices a growing threat, the IMF said on Tuesday.

The International Monetary Fund (IMF) reiterated its forecast of 5,5% GDP growth for the region this year and 5,9% in 2012, with low-income countries that make up the bulk of the continent recovering the fastest.

"Sub-Saharan Africa's recovery from the crisis-induced slowdown is well under way, with growth in most countries now back fairly close to the high levels of the mid 2000s," the IMF said in its latest regional economic outlook.

But it warned rising food and fuel prices were about to test the region's resilience of the past few years once again.

"These price shocks, coupled with the recovery, are likely to lead to higher inflation in most countries and to deteriorating current account deficits in a number of fuel importers," the 122-page report said.

"Monetary policy remains looser than desirable in many countries in the region ... Interest rates have failed to keep pace with the cyclical recovery, and policy now needs to move ahead of the curve," it said.

Growth forecasts varied, with the poorest countries recovering the fastest -- such as Ethiopia, forecast to grow 8,5% this year -- and middle-income countries lagging behind. South Africa is expected to grow just 3,5%.

The report assumed an average oil price of $107 per barrel for this year compared to $80 per barrel in 2010, an increase of more than a third which would result in higher import bills for most countries in the region, it said.

"Should prices rise sharply higher than assumed in the baseline, there almost certainly will also be an adverse effect on growth," the report said.

"In particular, simulations suggest that if oil prices were to increase to an average of $150 per barrel in 2011, growth in oil importing sub-Saharan African countries would decline by 0,5 to 0,7%," it said.

FOREIGN INVESTMENT

The report said private capital inflows had not yet returned to pre-crisis levels in all areas with some countries -- in particular Ghana and Mauritius -- seeing a marked increase last year but others seeing little sign of a resumption.

"Private investors, possibly still smarting from the global financial losses of recent years, seem to be distinguishing between markets," the report said.

Increased investor inflows into Ghana had partly been triggered by a tightening of fiscal and monetary policy in 2009 and 2010, the strong performance of its cocoa and gold sectors and the start of oil production last December.

There had also been a rise in portfolio equity investment in Zimbabwe following a 2009 economic stabilisation programme.

It was a different picture in Nigeria, where $3.6 billion of portfolio investment left the country in 2008-09 compared to a net inflow of $2 billion in the previous two years, although inflows had since started to recover.

Debt portfolio inflows recovered more slowly due to sharply lower domestic interest rates than in the period before the financial crisis, with government debt yields mirroring policy rates, the report said.

The IMF noted that high levels of foreign inflows into relatively small economies had posed challenges for policy in several countries before the crisis and again when investors pulled out, increasing exchange rate volatility.

It said some countries may consider temporary controls on capital inflows to try to mitigate a recurrence of such instability.

"The long-term trend has been toward more open capital accounts," the report said.

"However, Tanzania and Zambia tightened capital controls in an effort to discourage speculative inflows following their experience with abrupt reversal of flows during the global crisis," it said.