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AfDB Publishes African Economic Outlook 2020 Supplement Amid COVID-19

World Bank IMF and Dev Agencies	1333 VIEWS
World Bank IMF and Dev Agencies
1333 VIEWS

Tuesday, July 07, 2020 / 05:59 PM / by AfDB / Header Image Credit: AfDB

Key Messages

The COVID-19 pandemic, if not addressed expeditiously, poses a high risk for the onset of a major humanitarian and public health disaster for Africa. With new cases of the virus infection doubling every 7 to 14 days for most countries in Africa, and with 33 of the countries having very low health system preparedness to face the pandemic, its impact threatens to upend the continent's recent development trajectory and will require the undivided attention of African governments and the international community.

As a result of the pandemic, Africa's GDP is projected to contract in 2020 by 1.7 percent in the baseline scenario, which assumes a substantial impact of the virus but over a short duration. In the worst-case scenario, which considers a virulent impact of the virus over a longer duration (the pandemic continues beyond the first half of 2020), GDP would fall by 3.4 percent. A partial recovery of about 3 percent is projected for 2021. But the projected recovery in 2021 would not make up for an estimated cumulative loss to Africa's GDP of $173.1â€“$236.7 billion for 2020 and 2021 due to the pandemic.

Significant variations in the economic impacts of COVID-19 are expected across African countries, depending on their sectoral structure and initial conditions. Tourism-dependent, oil-exporter, and other resource-intensive economies are expected to be hardest hit due to the worldwide travel restrictions and the collapse of commodity demand and prices, notably for oil. For countries in these groups, growth in 2020 is expected to contract, on average by more than 4 percentage points. Less resource-intensive economies, thanks to more diversified economic structures, are expected to be more resilient to the shock.

Fiscal deficits are projected to double, and debt levels to increase by an additional 10 percentage points of GDP. Thus, the pandemic would create an additional public sector financing gap of $122 billion. However, the tightening of global financial markets has been reflected in flight-to-safety trends that have drained liquidity from emerging markets-and in sharp declines in foreign direct investment, remittances, and portfolio flows.

An additional 28.2 to 49.2 million Africans could be pushed into extreme poverty as an estimated 24.6 to 30 million jobs could be lost due to the pandemic. The direct impact of the pandemic on more than 23 million already vulnerable workers in Africa would drive the total number of people living in extreme poverty to 463 million in the worst-case scenario as unemployment levels jump.

Given the global scale of the pandemic, governments and development partners must respond in a manner that is coordinated, targeted, and rapid using all available policy levers. These levers include (i) a well-targeted public health response to contain the spread of the virus and minimize fatalities, (ii) a monetary policy response to ease liquidity constraints and solvency risks, (iii) a fiscal response to cushion the economic impacts of the virus and to protect vulnerable groups, (iv) labor market policies to protect workers and their jobs, and (v) structural policies to prepare for a post-COVID-19 world and build resilience to future shocks.

To reopen economies, policymakers need to follow a phased and incremental approach that carefully evaluates the tradeoffs between restarting economic activity too quickly and safeguarding the health of the population. Economic activities can be restarted incrementally on the basis of the transmission risks of different sectors. Businesses considered as having low-to-medium transmission risks-such as manufacturing, construction, and some retail services-can be reopened first. Next, governments should observe whether there is a rebound of cases of infection before proceeding to reopen economic activities considered to have high transmission risks, such as hotels, schools, restaurants, and sports and entertainment venues.