INSIDE POLITICS
The International Monetary Fund (IMF) expects Sub-Saharan Africa to see a record decline in economic activity in 2020 due to the impact of the COVID-19 pandemic.
The region’s economy is projected to contract by 1.6% this year, which is a downward revision of 5.2 percentage points from the IMF’s October 2019 forecast.
The IMF said that the less diversified economies will be hit the hardest, reflecting the impact of lower commodity prices and containment efforts.
Among the non-resource-intensive countries, those that depend on tourism are expected to witness a severe contraction because of extensive travel restrictions, while emerging market and frontier economies will face the consequences of large capital outflows and tightening financial conditions.
To mitigate this impact, the IMF, together with other Development Finance Institutions (DFI) such as the World Bank, the African Development Bank and the BRICS New Development Bank have pledged major support and as at 20 May 2020, the IMF on its own has provided loans worth US$ 9.6737bn to the region.
The largest recipient so far has been Nigeria, which received $3.4bn.
The IMF noted that as in the rest of the world, the health crisis has precipitated an economic crisis in the region reflecting three large shocks to economic activity.
The first shock was the strong containment and mitigation measures that countries have had to adopt to limit the spread of the COVID-19 outbreak which will disrupt production and reduce demand drastically.
The second shock is that plummeting global economic growth together with tighter global financial conditions are having large spill-overs to the region.
The third shock is the sharp decline in commodity prices, especially oil, which is set to compound these effects, by exacerbating challenges in some of the region’s largest resource-intensive economies, such as Angola and Nigeria.
The IMF said the large adverse shocks will exacerbate social conditions and aggravate existing economic vulnerabilities.
The measures that countries have had to adopt to enforce social distancing are certain to imperil the livelihoods of many vulnerable people.”
Given the limited social safety nets available, people will suffer.
Moreover, the pandemic is reaching the shores of the continent at a time when budgetary space to absorb such shocks is limited in most countries, thus complicating the appropriate policy response, the fund says.
In this context, the IMF said that decisive measures are urgently needed to limit humanitarian and economic losses and protect the most vulnerable people in the world. In this respect the immediate priority is for countries to do whatever it takes to ramp up public health expenditures to contain the virus outbreak, regardless of fiscal space and debt positions.
It added that sizable, timely and temporary fiscal support is crucial to protect the most affected people and firms, including those in the informal sector.
Policies could include cash or in-kind transfers to help people under strain (including through digital technologies) and targeted and temporary support to hard-hit sectors.
Once the crisis has subsided, countries should revert fiscal positions to paths that ensure debt sustainability.
(Compiled by Inside Politics staff)
