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Business News of Wednesday, 1 July 2020

Source: Business 24

IMF predicts Africa’s sharpest contraction in five decades

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The International Monetary Fund (IMF) is predicting that the COVID-19 pandemic is set to push the sub-Saharan Africa (SSA) economy to its lowest growth in nearly fifty years.

The latest prediction comes after the Fund further revised downwards an earlier prediction made in April when a lot of SSA countries were beginning to impose restrictions on movement to contain the spread of the pandemic.

The Washington-based institution in its latest Regional Economic Outlook Update for the region stated that economic activity is now projected to contract by some 3.2 percent, reflecting a weaker external environment and measures to contain the COVID-19 outbreak.

Tourism-dependent economies, oil-exporting countries, and other commodity exporters saw larger downward revisions in the latest update.

Commenting on the implication of this negative growth, Abebe Aemro Selassie, Director of the IMF’s African Department said on the average, per capita incomes across the region will fall by 5.5 percent in 2020, back to levels last seen nearly a decade ago.

This, he said, 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.

“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.

“Regional policies should remain focused on safeguarding public health, supporting people and businesses hardest hit by the crisis, and facilitating the recovery,” said Mr. Selassie.

According to him, while the immediate priority remains the preservation of health and lives, 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 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.

While the Bretton Woods institution predicts an immediate turnaround for growth, recovering to 3.4 percent in 2021, it says that would largely be contingent on continued gradual easing of restrictions that has started in recent weeks.

Also, a growth rebound would further be boosted by the region avoiding the same epidemic dynamics that have played out elsewhere.

The Fund called for more international support for the region stating that this year alone, countries in the region will face additional financing needs of over US$110bn, and despite initial efforts from donors US$44bn of this is 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 immediate tragedy of the crisis, but also in ensuring that peoples’ lives and livelihoods are not destroyed forever,” Mr. Selassie added.


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