GDP growth rate likely to decline by 3-8 percentage points, according to African ministers of finance
Africa’s economy is facing a synchronised slowdown due to the novel coronavirus disease (COVID-19) outbreak and could take up to three years to turn the corner, according to African ministers of finance.
The ministers said this in a meeting organised by Vera Songwe, executive secretary, Economic Commission for Africa on March 31, 2020.
The gross domestic product growth rate may decline by 3-8 percentage points in 2020, according to a recent McKinsey & Company analysis.
Over 52,000 positive cases and 172 deaths have been reported from 48 of the continent’s 54 countries.
According to African ministers of finance:
The COVID-19 pandemic will have drastic health, social and economic consequences in the continent. The “pandemic shock” will result in a drastic loss of revenues and slower economic growth. The continent would need $100 billion immediate emergency financing to deal with the pandemic.
The first such meeting was held on March 19, 2020, and the second on March 31. The aim was to underline health crisis and need for debt relief and fiscal stimulus.
The ministers also stressed on the need to boost private sector — especially tourism, airlines and small and medium enterprises.
According to Institute of International Finance, South Africa’s economy is estimated to contract by 2.5 per cent in 2020, but decreasing demand, travel restrictions and pandemic-related closures could lead to a deeper recession.
South Africa, with over 1,300 positive cases so far, is the most affected African country followed by Egypt (656) and Algeria (582).
Emergency finance
Warning that COVID-19 outbreak could spiral out of control, the ministers urged for $100bn immediate emergency financing.
South African President Cyril Ramaphosa had earlier appealed for the same at the virtual G20 summit held on March 26, 2020. According to media reports, Ethiopian Prime Minister Abiy Ahmed had sought $150 billion.
The ministers underlined the need to raise awareness, testing and social distancing.
They called for debt relief from bilateral, multilateral and commercial partners with the support of the multilateral and bilateral financial institutions such as the International Monetary Fund, the World Bank Group and the European Union.
This would ensure fiscal space for the African countries required to deal with the COVID19 crisis, said ministers.
Special purpose vehicle required
The ministers called for a special purpose vehicle to deal with all sovereign debt obligations. Substantial drops in revenue from commodity price drops coupled with increasing costs of imports is putting pressure on both inflation and the exchange rate, they said.
Pointing to the global economy which “may take two to three years to recover”, they urged their partners on the need to consider debt relief and forbearance of interest payments over a three-year period for all low- and middle-income countries.
On the other hand, there is looming fear of unemployment, underemployment and working poverty across the world, including Africa, according to International Labour Organisation analysis.
Under these circumstances, private sector can help create jobs. The ministers, thereby, appealed to Development Finance Institutions to support the sector.
It may be noted that the continent relies mostly on imports — of finished products, raw ingredients and active pharmaceutical ingredients — to meet local demands. According to Mckinsey & Company, Africa imports between 70 and 90 per cent of the drugs it consumes.
According to the ministers, financial support to private sector will enable local continental production of pharmaceutical products, create more jobs and ensure guaranteed supply of essential medicines.
They added that joint protocols were needed on border closures to allow for trade and humanitarian corridors. They stressed on the need for liquidity, refinancing and guarantee facilities to support the private sector.
While calling for protection of the African airlines, logistics and tourism industry affected by the pandemic, the finance ministers stressed on effective use of information and communication technology to manage the crisis.
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