The International Monetary Fund (IMF) has said that the coronavirus pandemic’s impact on Sub-Saharan African will come from three main shocks namely, economic disruptions, spillovers from global fallouts, and commodity price shocks.
In its report released from the April 2020 virtual Spring Meetings on Sub-Saharan, the Bretton Woods institution said the region will see its lowest growth in history, contracting at 1.6 percent. This would come from, first, disruptions in production as a result of workplace closures, disruption of supply chains, and reduction in labor supply because of sickness or death.
Secondly, the continent faces several external shocks which include trade and tighter global financial conditions. Closure of factories and borders with key trading partners of African countries has disrupted supply chains, thereby, lowering the availability of imported goods. In addition to this, capital inflows to the region will also reduce and this will significantly hamper the ability to finance spending needs to deal with the health crisis and support growth.
“This may result in either a cut in government spending, a buildup in arrears, or an increase in government borrowing in local markets, with attendant consequences on domestic credit and growth. For frontier economies, the sudden stop and capital outflows are exerting exchange rate pressures and can result in a large current account adjustment through domestic demand compression and further balance sheets pressures in countries with large foreign exchange mismatches.
Remittance flows may also decrease as global growth slows, reducing disposable income and adding to external pressures. Furthermore, travel restrictions can severely hit particular sectors like tourism, hospitality, and transport,” the IMF said.
Then, the third shock, which emanates from the sharp decline of commodity prices, will hit the region’s resource-intensive countries. This will result in low commodity revenues which would, in turn, make it difficult for governments to raise the needed revenue to combat the outbreak of the disease. In fact, it is largely due to this commodity price slump that has downed growth of the region to -1.6 percent, 5.2 percentage points lower than the original projected figure.
The IMF further states that growth in oil-exporting countries is projected to decline to ?2.8 percent in 2020, from 1.8 percent in 2019. This is what will result in seeing Nigeria’s GDP contract to 3.4 percent, a big blow to an economy which just recovered from a recession.
Other resource-intensive countries are expected to see a decline in growth of about 5 percentage points, from 2.3 percent to ?2.7 per cent. Non-resource-intensive countries are expected to see growth decline from 6.2 percent to 2 percent. Within this group, tourism-dependent countries such as Cape Verde, Comoros, The Gambia, Mauritius, São Tomé and Príncipe, Seychelles are expected to experience a severe downturn, with real GDP contracting by ?5.1 percent in 2020 after growing by an average of 3.9 percent in 2019.
Despite the gloomy picture, the IMF is confident that growth will start to recover, both in the region and globally, in the second half of 2020 as containment measures ease and significant economic stimulus in advanced and several emerging economies help prop up economic activity.
But commodity prices, especially oil, are not expected to rebound soon as the report said it will remain low through the medium-term. Growth in the region is projected to recover to about 4 percent in 2021.