Sub-Saharan African Growth Projected At -1.6% in 2020 - IMF

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Thursday, April 16, 2020 / 09:22 AM / by IMF / Header Image Credit: IMF 

The April 2020 Sub-Saharan Africa Regional Economic Outlook at a Glance

 

  • The COVID-19 pandemic threatens to exact a heavy human toll, and the economic crisis it has triggered can upend recent development progress.
  • Growth in sub-Saharan Africa in 2020 is projected at -1.6%, the lowest level on record.
  • The policy priority is to ramp up health capacity and spending to save lives and contain the virus outbreak.
  • Support from all development partners is essential to address the sizable financing needs, including debt relief for the most vulnerable countries.
  • Fiscal, monetary, and financial policies should be used to protect vulnerable groups, mitigate economic losses, and support the recovery. Once the crisis subsides, fiscal positions should return to sustainable paths.

 

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Sub-Saharan Africa is facing an unprecedented health and economic crisis. One that threatens to throw the region off its stride, reversing the development progress of recent years. Furthermore, by exacting a heavy human toll, upending livelihoods, and damaging business and government balance sheets, the crisis could retard the region's growth prospects in the years to come. No country will be spared.

 

The rapid spread of the virus, if left unchecked, is threatening to overwhelm weak healthcare systems. The number of confirmed cases of COVID-19 in sub-Saharan Africa is growing rapidly. As of April 9, more than 6,200 cases have been confirmed across 43 countries in the region, with South Africa, Cameroon, and Burkina Faso being the most affected.

 

As in the rest of the world, the health crisis has precipitated an economic crisis in the region reflecting three large shocks to economic activity:

 

  • The strong containment and mitigation measures that countries have had to adopt to limit the spread of the COVID-19 outbreak will disrupt production and reduce demand sharply;
  • Plummeting global economic growth together with tighter global financial conditions are having large spillovers to the region; and
  • The sharp decline in commodity prices, especially oil, is set to compound these effects, by exacerbating challenges in some of the region's largest resource-intensive economies.

 

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As a result, the region-s economy is projected to contract by -1.6% this year-the worst reading on record, a downward revision of 5.2 percentage points from our October 2019 forecast. Across countries, the less diversified economies will be hit the hardest, reflecting the impact of lower commodity prices and containment efforts. Among the non-resource-intensive countries, those that depend on tourism are expected to witness a severe contraction because of extensive travel restrictions, while emerging market and frontier economies will face the consequences of large capital outflows and tightening financial conditions.

 

The large adverse shocks will exacerbate social conditions and aggravate existing economic vulnerabilities. The measures that countries have had to adopt to enforce social distancing are certain to imperil the livelihoods of innumerable vulnerable people. Given the limited social safety net available, people will suffer. Moreover, the pandemic is reaching the shores of the continent at a time when budgetary space to absorb such shocks is limited in most countries, thus complicating the appropriate policy response.

 

In this context, decisive measures are urgently needed to limit humanitarian and economic losses and protect the most vulnerable societies in the world:

 

  • People first. The immediate priority is for countries to do whatever it takes to ramp up public health expenditures to contain the virus outbreak, regardless of fiscal space and debt positions.

  • Fiscal policy. Sizable, timely and temporary fiscal support is crucial to protect the most affected people and firms, including those in the informal sector. Policies could include cash or in-kind transfers to help people under strain (including through digital technologies) and targeted and temporary support to hard-hit sectors. Once the crisis has subsided, countries should revert fiscal positions to paths that ensure debt sustainability.

  • International solidarity. The ability of countries to mount the required fiscal response is highly contingent on ample external financing, on grant and concessional terms, being made available from the international financial community. This is all the more critical given the highly disrupted state of global capital markets. The absence of adequate external financing risks turning temporary liquidity issues into solvency problems, resulting in the effects of the COVID-19 crisis becoming long-lived.

  • Monetary policy. A more supportive monetary stance and injection of liquidity can also play an important role in sustaining firms and jobs by supporting demand. Financial sector supervision should aim to maintain the balance between preserving financial stability and sustaining economic activity. For countries with floating regimes, exchange rate flexibility can help cushion the external shocks, while some drawdown of reserves to smooth disorderly adjustment may mitigate potential financial implications from foreign exchange mismatches. For countries facing sizable and disorderly capital outflows, temporary capital flow management measures could be considered as part of a wider policy package.

 

Economic forecasts at this juncture are subject to higher-than-usual degrees of uncertainty. Subject to the decisive actions laid out above, growth in the region is projected to recover in 2021 to about the 4 percent mark. However, the depth of the slowdown in 2020 and the speed of recovery will depend on several factors, including how the pandemic interacts with weak local health systems, the effectiveness of national containment efforts, and the strength of support from the international community.

 

Download Here - SSA Regional Economic Outlook April 2020


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