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COVID-19 and the SSA Region: Entering a Period of Negative Growth

Global Market	1146 VIEWS
Global Market
1146 VIEWS

Friday, April 17, 2020 / 2:00 PM / United Capital Research / Header Image Credit: Ecographics

According to the IMF's recently published Regional Economic Outlook for SSA, growth in 2020 is projected to decline by -1.6%. This will be the lowest level in more than 20 years, as the coronavirus outbreak threatens to break the region's 2 straight decades of positive growth. No doubt, a number of reasons point to the expected sharp slowdown in growth.

In SSA, several economies rely heavily on commodity exports (Oil, Agriculture, Solid minerals etc) as well as tourism for revenue and forex earnings. With the plunge in commodity prices and the lockdown/ restriction of movement affecting economic activities, government and corporate revenues are expected to tumble. Also, the major trading partners to SSA economies - China, Europe, and America - are the hardest hit in terms of the outbreak, which will weaken demand for exports. Furthermore, in terms of capital outflows the IMF estimated that investors have pulled out over $90.0 bn from emerging markets since the beginning of the crisis, to the detriment of SSA financial and currency markets. Finally, a major challenge is the combination of weak local healthcare systems and lack of substantial fiscal buffers that can mitigate the economic impact of lockdowns on the livelihoods of numerous vulnerable Africans. Bearing the above in mind, the need for SSA countries to increase healthcare expenditure and roll out fiscal policy palliatives is necessary. Also, the increased possibility of financing from multilateral organizations, as well as the IMF approving debt relief for 19 SSA economies could not have come at a better time. Furthermore, monetary policy can be an effective tool in ensuring financial system stability by injecting liquidity to support businesses while limiting the impact of the shutdown on economic activities.

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