Wednesday, March 25, 2020 /02:59 PM / By Karen Ongley and Abebe Aemro Selassie, IMFBlog / Header Image Credit: Amanuel Sileshi/Istock By Getty Images
The growing presence of COVID-19 in sub-Saharan Africa threatens the same human costs as elsewhere in the world. The economic costs could be just as devastating.
For their part, countries in sub-Saharan Africa are acting decisively, taking sweeping measures to halt the advance of the virus, with limits on public gatherings, public safety campaigns, and similar measures.
But we also know that for society's most vulnerable in the region, "social distancing" is not realistic. The notion of working from home is only possible for the few. So, difficult decisions to close borders (to people, but not essential goods) are even more important. All the more so if we are to minimize added strain on already fragile health systems.
From health crisis to global economic crisis
What began as a health crisis is now a major global economic crisis. We fear African countries will be swept up in that.
A decade ago, the region was spared the brunt of the global financial crisis. Lower debt levels meant most countries had room to increase spending and they were able to implement counterâ€‘cyclical policies. Countries were also less integrated with global financial markets and that meant being cut off from financing was harmful for only a handful of countries.
Neither of those conditions apply today. Many countries in sub-Saharan Africa have limited room in their budgets to increase spending. They also rely more on global capital markets.
This time will be different
The pandemic will have a substantial economic impact on sub-Saharan Africa, in three ways.
One: the very measures that are crucial to slowing the spread of the virus will have a direct cost on local economies. The disruption to people's daily lives means less paid work, less income, less spending, and fewer jobs. And, with borders closed, travel and tourism are quickly drying up, and shipping and trade are suffering.
Two, global hardships will spill over to the region. The slowdown in major economies will see global demand fall. Disruptions to production and world supply chains will weigh more on trade. Tighter global financial conditions will limit access to finance. Countries are likely to also see delays in getting investment or development projects off the ground.
Three: the sharp decline in commodity prices will hit oil exporters hard, compounding the first two effects. The price of oil has tumbled to levels not seen in decades. We don't yet know where they will settle, but with oil prices already down by more than 50 percent since the start of the year, the impact will be substantial. We estimate that each 10 percent decline in oil prices will, on average, lower growth in oil exporters by 0.6 percent and increase overall fiscal deficits by 0.8 percent of GDP.
Lower forecasts likely
Across the region, growth will be hit hard. Precisely how hard is still difficult to say. But it is clear that our growth forecast in April's regional outlook will be significantly lower.
The slowdown will mean revenues take a hit, just as countries face additional public spending needs.
Yet, now is no time for half measures. Without exception, people's health is the priority and countries should boost health spending accordingly.
Countries will also need to combat the economic fallout. The right policy prescription will depend on each country's circumstances-the channel through which it is most exposed and the depth of the connections.
While the likely duration of disruption remains unclear, Farr's Law of Epidemics-showing the rise and fall of infections as roughly bell-shaped-gives us some reassurance the shock will pass.
Fiscal policy will have to play a leading role in mitigating the shock, with fiscal positions reverting to mediumâ€‘term paths consistent with debt sustainability. Targeted cash transfers could also be considered to help individuals and households under strain.
Where feasible, governments should consider targeted and temporary support for hard-hit sectors such as tourism. For instance, temporary tax relief through targeted reductions or delays in paying taxes could help address cashflow shortfalls for affected businesses.
Easing monetary policy can complement fiscal efforts, especially with inflation in single-digits in the vast majority of countries in the region. Financial measures can help minimize disruptions to much-needed credit and liquidity for businesses, including central bank liquidity provision or temporary credit guarantees. For countries with flexible exchange rate regimes, the exchange rate should be allowed act as a shock absorber.
Protecting lives and livelihoods
Importantly, countries in subâ€‘Saharan Africa shouldn't have to 'go it alone'.
Too often, financing limits recourse to supportive policies when major shocks hit. The international community needs to do its utmost to help ease these constraints and ensure that peoples' lives and livelihoods are not destroyed.
While the priority is on protecting life, the IMF is helping where it can, by supporting livelihoods.
The Fund is making $50 billion available via rapid-disbursing emergency facilities, including $10 billion on highly concessional terms for low-income countries.
With this, we are accelerating efforts to back countries in the region. So far, we've received requests for emergency financing from close to 20 countries, with requests from another 10 or more countries likely soon.
Our member countries need us more than ever. Discussions between IMF teams and country officials are advancing quickly, and we expect the first wave of this support to be delivered in early April.
For countries facing difficult debt situations, the priority-people's heath-is the same. Here, the international community can step up. Immediate debt relief through the Fund's Catastrophe Containment and Relief Trust can help free up resources for much needed health spending. These countries should also reach out to donors to secure grant and concessional financing.
In the same vein, the Fund is working closely with our partners-the World Bank, World Health Organization, African Development Bank and African Union-to respond to this crisis. The speed and strength of the international community's response will be paramount.
To paraphrase Gabriel Garcia-Marquez: humanity, like armies in the field, advances at the speed of the most vulnerable.
Countries in sub-Saharan Africa can be assured they have the full force, and full speed, of the IMF behind them.
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