FORECAST NOW EXPECTS AFRICA’S GDP TO FALL BY AT LEAST 3.2 PERCENT IN 2020
(Posted 30th June 2020)
|Sub-Saharan Africa’s economy is now expected to contract by 3.2 percent in 2020; double the contraction expected in April
The regional outlook has deteriorated sharply since the April 2020 Regional Economic Outlook report release. Sub-Saharan Africa’s economy is now expected to contract by 3.2 percent in 2020; double the contraction expected in April.
This will contribute to poverty increase this year; the growth rate of new COVID infections has slowed somewhat, allowing some countries to gradually ease their containment measures. However, the scope for the pandemic to spread as aggressively as elsewhere remains a very real threat; governments have acted swiftly to support the economy. Nonetheless, these efforts have been constrained by falling revenues and limited fiscal space; Africa’s resilience is being tested. The Continent has come through much and will come through this crisis also. But with stepped-up support from the international community, the region will be able to boost local containment efforts and healthcare capacity and also enjoy a robust recovery in the coming months.
The COVID-19 pandemic continues to represent an unprecedented health and economic crisis, with costs that will be felt most keenly by the poorest segments of the world’s population, the International Monetary Fund (IMF) said in its latest Regional Economic Outlook for Sub-Saharan Africa.
“This is a fast-moving crisis” said Abebe Aemro Selassie, Director of the IMF’s African Department. “And recent developments suggest that the downturn will be significantly larger than we had anticipated only 10 weeks ago. The risks we highlighted in April all continue to be a concern, but the deterioration of the global outlook has been particularly striking. In line with this new outlook, and consistent with local high-frequency indicators, output in Sub-Saharan Africa is now projected to shrink by 3.2 percent this year, more than double the contraction we had outlined in April. Again, this is set to be the worst outcome on record.‘
On economic policies, sub-Saharan African countries have acted swiftly and aggressively to support the economy. Monetary and prudential policies have been eased, with countries adopting a mix of reduced policy rates, added injections of liquidity, greater exchange-rate flexibility, and a temporary relaxation of regulatory and prudential norms, depending on country circumstances.
On the fiscal side, however, country responses have often been more constrained. Even before the crisis, debt levels were elevated for many countries in the region. In this context, and in light of collapsing tax revenues, the ability of governments to increase spending has been limited. To date, countries in the region have announced COVID-related fiscal packages averaging 3 percent of GDP. This effort has been indispensable. But it has often come at the expense of other priorities, such as public investment, and is markedly less than the response seen in other emerging markets or advanced economies.
Also, authorities in sub-Saharan Africa face a distinct challenge in getting support to those who need it most. Around ninety percent of non-agricultural employment is in the informal sector, where participants are usually not covered by the social safety net. Moreover, a large proportion of this activity centers on the provision of services, which have been particularly hard hit by the crisis. Further, informal workers typically have few savings and limited access to finance. So staying at home is often not an option; complicating the authorities’ efforts to maintain an effective lockdown. In response, many authorities have done what they can to temporarily expand their safety nets; using home-grown, often innovative approaches to ensure that transfers reach as much of their population as possible. But again, resources are limited, and these efforts cannot hope to offset the full impact of this crisis.
In summary, many authorities in Sub-Saharan Africa face a particularly stark set of near-term policy choices; concerning not only the scale of support they can afford, but also the pace at which they can reopen their economies.”
Against this backdrop, Mr. Selassie pointed to a number of policy priorities going forward when he said:
“First and foremost, the immediate priority remains the preservation of health and lives. But as the region starts to recover, authorities should gradually shift from broad fiscal support to more affordable, targeted policies; concentrating in particular on the poorest households and those sectors hit hardest by the crisis. Looking even further forward, and once the crisis has waned, countries should refocus their attention on transforming their economies, creating jobs, and boosting living standards—clawing back some of the ground lost during the current crisis. As before the crisis, part of this effort will require putting fiscal positions back on a path consistent with debt sustainability; which will in turn require a renewed determination to implement revenue-mobilization, debt-management, and public financial management reforms. In addition, sustainable, job-rich, and inclusive growth will require private-sector investment, along with a business environment in which new ideas and projects can flourish, and where new opportunities (such as from the digital revolution) can be developed fully.