The regional outlook has deteriorated sharply since the April 2020 Regional Economic Outlookreport release. Sub-Saharan Africa’s economy is now expected to contract by 3.2 % in 2020; double the contraction expected in April.
•Thiswill contribute to poverty increase thisyear.
•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. T
The risks we highlighted in April all continue to be a concern, but the deterioration of the global outlookhas 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 the pandemic, the growth rate of new cases has slowed slightly since April, and a number of countries have cautiously eased some of their containment measures. But regionwide, the pandemic is still in its exponential phase—Sub-Saharan Africa has recently exceeded more than a quarter of a million confirmed cases, and new cases are still doubling every 2-3 weeks.
Given the region’s already-stretched healthcare capacity, the immediate priority is still to protect lives and to do whatever it takes to strengthen local health systems and contain the outbreak. “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 centres 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 sum, 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 numberof policy priorities going forward.
“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 put 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.
“None of this will be easy, particularly in light of the scale of the crisis and its longer-term consequences. The region cannot tackle these challenges alone, and a coordinated effort by all development partners will be key. The IMF has modified the Catastrophe Containment and Relief Trust (CCRT) to provide immediate debt service relief for its poorest and most vulnerable members, and has also doubled its emergency lending facilities. So far, 29 countries in the region have received around USD 10 billion in funding through these facilities, or through expanded access under existing programs. In April, the G20 also announced the Debt Service Suspension Initiative (DSSI), which allows the world’s poorest countries—most of them in Africa—to suspend up to USD 14 billion of debt service payments due between May and December this year.
Nonetheless, more international support is needed urgently. This year alone, countries in the region face will additional financing needs of over USD 110 billion, and despite the effortsoutlined above, USD 44 billion of this has yet to be financed.“This crisis is unprecedented. Our members need us now more than ever. And our efforts today will have significant consequences down the road, not only in helping our members offset the immediatetragedy of the crisis, but also in ensuring that peoples’ lives and livelihoods are not destroyed forever.
The entire report can be had here
Six Charts Show How the Economic Outlook Has Deteriorated in Sub- Saharan Africa since April
Country Focus, June 2020
Economic activity this year will be significantly lower than envisaged in April. Growth is now projected to contract by 3.2 percent in sub-Saharan Africa, double the contraction envisaged in April.
The downward revision to the growth projections reflects the impact of domestic measures to contain the COVID-19 outbreak, as well as a weaker external environment, the IMF says in its latest Regional Economic Outlook Update: Sub-Saharan Africa [link].
On average, per capita incomes across the region will fall by 5½ percent in 2020, back to levels last seen nearly a decade ago. This will likely lead to more poverty and widen income inequality as lockdowns disproportionally affect informal sector workers and small- and medium-sized companies in the services sectors. The region’s outlook is subject to much uncertainty.
“Regional policies should remain focused on safeguarding public health, supporting people and businesses hardest hit by the crisis, and facilitating the recovery,” says Abebe Aemro Selassie, Director of the IMF’s African Department.
Here are six charts that tell the story
Containment measures were taken to safeguard public health. Shortly after the region’s 100th case on March 15, many country authorities proactively implemented strict containment measures to control the COVID-19 outbreak. These measures led to more people staying home and reducing daily movements to areas with services and recreational facilities, including the informal economy. The growth of new cases has slowed somewhat since, and a number of countries have cautiously eased some of their containment measures. But regionwide, the pandemic is still in its exponential phase with more than a quarter of a million confirmed cases, and infection cases doubling every 2-3 weeks.
The external environment is less favorable. Since April, global growth for 2020 has been revised down by 1.9 percentage points to –4.9 %; global travel has collapsed and tourism flows have grounded to a halt; remittances are expected to fall by about 20 %; external financing conditions remain tight despite some easing in recent weeks; and commodity prices remain low.
3. Growth in 2020 is now projected to be lower than envisaged in April. The regional economy is projected to contract by 3.2 % in 2020, which is 1.6 percentage points deeper than projected in April. Growth was revised down for 37 countries out of 45.
Tourism-dependent economies, oil exporting countries, and other commodity exporters have seen larger downward revisions. Growth in SSA is projected to recover only gradually assuming that the pandemic abates and lockdowns ease in the second half of 2020. In 2021, regional growth is projected at 3.4 % in 2021, which is 0.6 percentage points below the April 2020 projection.
4. The COVID-19 crisis is set to wipe out nearly 10 years of progress in development. Real per capita GDP in the region is projected to contract by 5.4 % in 2020. This will bring the per capita GDP almost back to its level in 2010. COVID-19 is set to increase extreme global poverty for the first time in decades, with 26-39 million people thrust into extreme poverty in Sub-Saharan Africa alone.
5. Timely fiscal support is crucial, but many authorities are constrained. The preservation of health and lives remains the priority. Most country authorities have allocated more resources to healthcare and virus containment measures and to support vulnerable households. However, many authorities are constrained in their ability to increase spending to mitigate the impact of the crisis .
6. More international support is urgently required for sub-Saharan Africa. International financial institutions, including the IMF, have provided much-needed assistance to sub- Saharan Africa. On April 15, the G20 announced the Debt Service Suspension Initiative (DSSI), which allows the world’s poorest countries — most of them in Africa — to suspend up to USD 14 billion of debt service payments due in 2020. Despite this, countries across Africa still face financing needs amounting to over USD 110 billion in 2020, with USD 44 billion still having to be financed.