Africa is expected to reverse an economic contraction linked to fallout from the COVID-19 pandemic next year, according to the International Monetary Fund, but the impact will be felt for years to come.
Sub-Saharan Africa’s gross domestic product is on track to shrink this year by 1.6% – the lowest level on record – because of the combined effects of the disease and plummeting oil and commodities prices.
Growth of around 4% should follow in 2021, according to the IMF’s regional economic outlook for Africa, released on Wednesday.
But the IMF warned that firm forecasts are currently hard to make. And in the event of a more protracted disease outbreak and deeper global recession, it envisions Africa’s economy shrinking an additional 2.5% this year.
“I don’t think we’ve ever had as difficult a time trying to do projections in the institution, certainly in my 25 years,” Abebe Aemro Selassie, head of the IMF’s Africa department, told Reuters in an interview.
The Fund’s baseline scenario assumes that measures aimed at containing the disease, including lockdowns, will be concentrated in this year’s second quarter.
“We hope to see a rebound after that, with some recovery into next year. In some sectors such as construction or services, there will be pent-up demand and there could be a bounce back in those sectors,” Selassie said.
Still, the pandemic will cause persistent, large losses of output “with the level of real per capita GDP expected to be about 4.5% lower by 2024 compared with the pre-COVID-19 projections,” the report stated.
African oil exporters can expect a 2.8% contraction this year, according to the IMF report. Other resource-intensive economies will shrink 2.7%.
Non-resource-intensive countries are expected to see growth decline to 2.0% from 6.2% last year. Within this group, however, tourism-dependent countries, including Cape Verde, Comoros, Gambia, Mauritius, São Tomé and Príncipe, and Seychelles, are projected to see a 5.1% contraction.
To give countries breathing room during the crisis, the IMF and World Bank have proposed suspending debt service this year for the world’s poorest countries. Wealthy nations are expected to answer the call during a meeting of the Group of 20 (G20) major economies on Wednesday.
The IMF is not at this stage endorsing the kind of broader relief and debt cancellation African finance ministers are calling for.
“Debt sustainability is country‑specific and a medium‑ to long-term issue. Much will depend on how countries recover from this shock. My sense is they will do so at varied speeds,” Selassie said.
Africa’s creditor landscape has grown increasingly complex over the past two decades. Debt is held not only by Paris Club members and multilaterals, but also China, commercial banks and Eurobond holders.
“Quite a lot of thinking and work is needed to make sure that we understand and have modalities through which we can do debt relief operations,” he said.
“That’s really been kick-started with a vengeance as a result of the challenges countries are facing right now … a new architecture is needed.”
SOURCE: REUTERS