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Pandemic to push Sub-Saharan Africa into recession

By Edith Mutethya in Nairobi, Kenya | chinadaily.com.cn | Updated: 2020-04-16 19:51
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A man covers his face with a makeshift mask during a 21 day nationwide lockdown aimed at limiting the spread of coronavirus disease (COVID-19) in Khayelitsha township near Cape Town, South Africa, March 31, 2020. [Photo/Agencies]

Economies in Sub-Saharan Africa are projected to contract by 1.6 percent in 2020, the worst record ever, about 5.2 percent points lower than envisaged in October 2019, due to coronavirus pandemic-related effects, according to the International Monetary Fund.

In Nigeria, the largest economy in the region, gross domestic product is expected to contract by 3.4 percent, mainly reflecting the large drop in oil prices and the impact of containment and mitigation measures on economic activity.

In South Africa, the second-largest economy in the continent, growth is expected to fall from 0.2 percent in 2019 to -5.8 percent in 2020, due to disruptions caused by containment and mitigation measures, as well as lower external demand, compounded with existing structural constraints.

In its world economic outlook released on Tuesday, the IMF said Sub-Saharan Africa is facing an unprecedented health and economic crisis that threatens to throw the region off its stride and reversing the encouraging development progress of recent years.

The crisis threatens growth prospects through exacting a heavy human toll, upending livelihoods, and damaging business and government balance sheets.

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 strong containment and mitigation measures adopted by countries to limit the spread of the disease, will greatly disrupt production and reduce demand sharply.

Already the plummeting global economic growth and tighter global financial conditions are experiencing large spillovers to the region.

Additionally, the sharp decline in commodity prices, especially oil, is set to compound these effects, exacerbating challenges in some of the region's largest resource-intensive economies, notably Angola and Nigeria.

"The pandemic is reaching the shores of the continent when budgetary space to absorb the effects of the shocks is limited in most countries, thus complicating the appropriate policy response," the report said.

The security situation in the Sahel remains difficult, and the continent has been battered by multiple weather-related shocks, including cyclones, droughts in southern and eastern Africa, and severe locust swarms.

The IMF said decisive measures are urgently needed to limit humanitarian and economic losses and protect the most vulnerable societies in the world, with priority being ramping up public health expenditures to contain the virus outbreak, regardless of fiscal space and debt positions.

The organization said one of the key measures would be timely and temporary fiscal support to protect the most affected people and firms, including those in the informal sector.

This would involve policies like cash transfers to help people under strain and targeted and temporary support to hard-hit sectors.

Another measure would be availability of ample external financing on grant and concessional terms from the international financial community.

The IMF said a more supportive monetary stance and injection of liquidity also can play an important role in supporting demand.

"Financial market supervision should aim to maintain the balance between preserving financial stability and sustaining economic activity," it said.

While the IMF expects growth to bounce back in 2021 to about 4 percent, it said 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.

This is in addition to the effectiveness of national containment efforts and the strength of support from the international community

Globally, IMF projects growth to plummet from 2.9 percent in 2019 to -3 percent in 2020, far lower than during the 2008–09 global financial crisis.

Among the Sub-Saharan African region's key trading partners, the euro area is expected to contract from 1.2 percent in 2019 to −7.5 percent in 2020, and growth in China is expected to slow considerably from 6.1 percent to 1.2 percent.

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