Sub-Saharan Africa: A Difficult Road to Recovery
With difficult recovery ahead, policy makers have fewer resources at their disposal as they cautiously lift restrictions and reopen economies. Transformative reforms are urgently needed for rekindling resilient growth, which will be difficult without external support, the International Monetary Fund (IMF) said in its latest Regional Economic Outlook for Sub-Saharan Africa.
“Sub-Saharan Africa is contending with an unprecedented health and economic crisis,” stressed Abebe Aemro Selassie, Director of the IMF’s African Department. “In just a few months, this crisis has jeopardized years of hard-won region’s development gains and upended the lives and livelihoods of millions. The onset of the pandemic was delayed in sub-Saharan Africa, and infection rates have been relatively low compared to other parts of the world. However, the resurgence of new cases in many advanced economies and the specter of repeated outbreaks across the region suggest that the pandemic will likely remain a very real concern for some time to come.
“Nonetheless, amid high economic and social costs, African countries are now cautiously starting to reopen their economies and are looking for policies to restart growth. With the imposition of lockdowns, regional activity dropped sharply during the second quarter of 2020, but with a loosening of containment measures, higher commodity prices, and easing financial conditions, there have been some tentative signs of a recovery in the second half of the year.
“Overall, the region is projected to contract by 3.0 percent in 2020, the worst outlook on record. Tourism-dependent economies faced the largest impact, while commodity exporting countries have also been hit hard. Growth in more diversified economies will slow significantly, but in many cases will still be positive in 2020.
“Looking forward, regional growth is forecast at 3.1 percent in 2021. This is a smaller expansion than expected in much of the rest of the world, partly reflecting sub-Saharan Africa’s relatively limited policy space within which to sustain a fiscal expansion. Key drivers of next year’s growth will include an improvement in exports and commodity prices as the world economy recovers, along with a recovery in both private consumption and investment.
“The current outlook is subject to greater-than-usual uncertainty with regard to the persistence of the COVID-19 shock, the availability of external financial support, and the development of an effective, affordable, and trusted vaccine.”
Against this backdrop, Mr. Selassie pointed to a number of policy priorities going forward.
“Where the pandemic continues to linger, the priority remains to save lives and protect livelihoods. For countries where the pandemic is under greater control, limited resources will mean that policy makers aiming to rekindle their economies will face some difficult choices. Both fiscal and monetary policy will have to balance the need to boost the economy against the need for debt sustainability, external stability, and longer-term credibility. Financial regulation and supervision will have to help crisis-affected banks and firms, without compromising the financial system’s ability to support longer-term growth. And these efforts must also be balanced against the need to maintain social stability while simultaneously preparing the ground for sustained and inclusive growth over the long term.
“Navigating such a complex policy challenge will not be easy and will require continued external support. Indeed, without significant assistance, many countries will struggle to simply maintain macroeconomic stability while meeting the basic needs of their population. In this context, the IMF has moved swiftly and disbursed about US$17 billion so far in 2020 – which is about 12 times more than we typically disburse each year – to help cover a significant portion of the region’s needs and to catalyze additional support from the international community.
“But looking ahead, sub-Saharan Africa faces significant financing gaps. If private financial inflows remain below their pre-crisis levels – and even taking into account existing commitments from international financial institutions and official bilateral creditors – the sub-Saharan Africa could face a gap in the order of $290 billion over 2020-23. This is important, as a higher financing gap could force countries to adopt a more abrupt fiscal adjustment, which in turn would result in a weaker recovery.
“Countries must also play their part – governance reforms will not only improve trust in the rule of law and improve business conditions, but also encourage external support.
“Despite the lingering effects of the crisis, the potential of the region and the resourcefulness of its people remain intact, and tapping this potential will be vital if the region is to find its way back to a path of sustainable and inclusive development. In this context, the need for transformative reforms to promote resilience, lift medium-term growth and create the millions of jobs needed to absorb new entrants into labor markets is more urgent than ever. Priority reforms are in the areas of revenue mobilization, digitalization, trade integration, competition, transparency and governance, and climate-change mitigation.”