SA predicted to experience weaker economic recovery than its African peers
JOHANNESBURG - The World Bank has said that South Africa will experience a weaker economic recovery this year compared to its peers in southern and east Africa due to delays in implementing structural reforms.
The lender said in its Africa’s Pulse report published yesterday that the sub-Saharan Africa region would suffer a severe economic downturn in 2020.
It said the downturn would be followed by subdued growth in 2021 amid persisting global uncertainty about the evolution of the Covid-19 pandemic, but growth will vary across countries.
World Bank vice president for eastern and southern Africa Hafez Ghanem said some countries had started to take advantage of the opportunity to put policy reforms in place.
“We’ve seen that Angola, Ethiopia and South Africa have accelerated reforms during this time, ensuring that they are poised for growth when the threat of the pandemic has subsided,” Ghanem.
“There’s no escaping the economic impact that Covid-19 has had on the sub-region, but accelerating reforms is one way to be in the best possible position post-pandemic.”
The biannual report said while South Africa was expected to experience a weak recovery, overall growth in eastern and southern Africa region was expected to average 2.7 percent.
South Africa is expected to contract by a significant 7.2percent in 2020, the biggest annual contraction in 90 years.
The SA Reserve Bank has cut interest rates five times in 2020 to stimulate consumption following a 17.1percent year-on-year contraction in the second quarter.
The World Bank projected that economic activity in sub-Saharan African countries would decline by 3.3percent in 2020, the region’s first recession in 25 years.
It said that Covid-19 also threatened to push up to 40 million people into extreme poverty in Africa, eroding many of the development gains of the past decade.
The bank said sub-Saharan Africa’s real gross domestic product (GDP) is projected to pick up to 2.1percent in 2021, which is below the 2.4percent rate achieved in 2019.
Chief economist Albert Zeuflack said Africa’s road to recovery post Covid-19 would be long and steep.
Zeuflack said debt levels in the subregion were expected to rise strongly among metals exporters, including Zambia and South Africa, due to their high financing needs.
He said that South Africa’s fiscal performance was expected to weaken significantly, with the fiscal deficit projected to rise from -6.4percent of GDP in 2019 to -16.2percent of GDP in 2020.
Zeuflack said most African countries will emerge from the crisis with a deeper fiscal deficit, and thus the recovery should be paved with sound economic policies.
“The fiscal deficit is likely to increase by an average of 3.5percentage points across the continent and debt is likely to reach 67percent in 2021, coming very close to the threshold of 70percent that makes it extremely dangerous,” Zeuflack said.
“Countries need to reconstitute their fiscal space to finance programs that can stimulate recovery.”
FXTM’s Lukman Otunuga said while investments across countries and critical external financial support may patch the damage caused by Covid-19, countries on the continent needed to address domestic risks.
“For South Africa, which has been dragged into its longest recession in almost 30 years, the outlook remains clouded by a selection of negative themes,” Otunuga said.