New waves of Covid-19 infections could derail the economic recovery in sub-Saharan Africa, which is already forecast to lag the rest of the world this year amid limited access to vaccines, the International Monetary Fund warned.
This is coming on the heels of predictions by the analysts at the Financial Derivatives Company (FDC) in the just released Afriscope, that economic recovery in SSA is expected to be sharply higher, rising from -3.8% in 2020 to 2.3% in 2021, with the effective expansion at 6.1%.According to FDC, the growth will be mainly driven by the East African region. Kenya (7.6%), Uganda (6.3%) and Ethiopia (2.0%) owing to the recovery in horticulture, services and agriculture sectors.
This is coming on the heels of predictions by the analysts at the Financial Derivatives Company (FDC) in the just released Afriscope, that economic recovery in SSA is expected to be sharply higher, rising from -3.8% in 2020 to 2.3% in 2021, with the effective expansion at 6.1%.According to FDC, the growth will be mainly driven by the East African region. Kenya (7.6%), Uganda (6.3%) and Ethiopia (2.0%) owing to the recovery in horticulture, services and agriculture sectors.
Ironically, the largest economies – Nigeria (1.2%), South Africa (3.1%) and Angola (0.4%) would remain laggards, indicating that these countries will again underperform the SSA growth average.
More noteworthy is that SSA inflation will fall to 8.1% from 9.9% in 2020 due to the stability of the South African Rand compared to the Naira.
Nigeria’s current inflation figure for March is 18.17 percent, the highest in four years.
Another militating factor is the rising debt as, for instance, total external debt in SSA is estimated to jump by 8% to $720.1bn in 2021 from $666.3bn in 2020 as borrowing from multilateral and bilateral creditors climb.
However, Nigeria’s share is a miniscule 4.6% ($33.35bn as at Q4’20). The health of Nigeria’s economy is currently subject to national discourse as Godwin Obaseki, Edo governor and member of the nation’s economic council alleged recently that the financial crisis has reached the peak with federal government printing N60 billion to augment the March FAAC money distribution to the states. However, Zainab Ahmed, Finance. Budget and National Planning minister had since debunked the allegation, regarding it as lies.
In fact, with the US inflation at an 11-year high of 2.6%, an increase in US interest rates is now imminent, and when this happens, SSA countries could fall into a debt trap and contend with excruciating debt service costs.
The borrowing loop is expected to continue, which would undermine the ability of governments to spend on infrastructure development and social intervention programs. Notwithstanding, some African countries are scrambling to the international capital markets for Eurobond issues – Nigeria ($6.14bn), Ghana ($5bn) and Kenya ($7.3bn).
“Policy makers need to focus on borrowing to complete existing infrastructure projects and increase total factor productivity,” FDC said.
However, in its regional economic outlook released on Thursday, according to Bloomberg, the IMF said growth projections are subject to “greater-than-usual uncertainty” given the risks of further Covid-19 shocks in the continent, which relies on a World Health Organization-led initiative to provide vaccines known as Covax.
“If supply and distribution issues continue, most countries will struggle to reach herd immunity before the end of 2023, leaving them exposed to new, more virulent strains of the disease,” the fund said. “For the international community, ensuring vaccine coverage for sub-Saharan Africa is not simply an issue of local livelihoods and local growth. Broad regional coverage is also a global public good.”
Although sub-Saharan Africa’s economy contracted less than initially expected in 2020, projected expansion of 3.4% would make it the slowest-growing region this year as vaccination picks up in the rest of the world, according to the IMF.
“If supply and distribution issues continue, most countries will struggle to reach herd immunity before the end of 2023, leaving them exposed to new, more virulent strains of the disease,” the fund said. “For the international community, ensuring vaccine coverage for sub-Saharan Africa is not simply an issue of local livelihoods and local growth. Broad regional coverage is also a global public good.”
Although sub-Saharan Africa’s economy contracted less than initially expected in 2020, projected expansion of 3.4% would make it the slowest-growing region this year as vaccination picks up in the rest of the world, according to the IMF.
The downturn pushed more than 32 million people into extreme poverty last year and per-capita output may not return to pre-pandemic levels until after 2022 or even 2025 for some countries.
Most African countries, with their finances strained by measures to contain the pandemic, will have to bolster health-care spending by 50% to vaccinate more than half of their populations.
“Strong reforms to engender growth, and significant external financing are important, because there’s a lot at stake in terms of reversing the increase in poverty that we’ve seen, and making sure going forward, you actually see growth keeping pace with the rapid population growth,” the IMF Africa Department Director Abebe Aemro Selassie said in an interview.
A proposal to increase the fund’s reserve assets this year would provide the continent with $23 billion, which is only a fraction of the $425 billion it needs to finance its recovery through 2025, according to the report. The region will have to mobilize private funds to meet investment needs in coming years.