World Bank sounds alarm bells as sub-Saharan Africa faces recession
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JOHANNESBURG - The World Bank has warned that sub-Saharan Africa risks suffering its first recession in over 25 years this year as growth would be significantly impacted by the ongoing coronavirus (Covid-19) outbreak.
The bank this week slashed its 2020 growth forecast for sub-Saharan Africa from 2.4 percent in 2019 to between -2.1 percent to -5.1 percent this year.
It said its twice-yearly economic update for the region, Africa’s Pulse, showed that Covid-19 was set to cost between $37 billion and $79bn in output losses for 2020.
The bank said the downward revision of its outlook reflected macroeconomic risks arising from the sharp decline in output growth among the region’s key trading partners, the fall in commodity prices, reduced tourism activity in several countries, as well as the effects of measures to contain the Covid-19 global pandemic.
Sub-Saharan Africa has recorded nearly 6 000 confirmed Covid-19 infections and close to 600 deaths across the continent.
The bank said the crisis had the potential to spark a food security crisis in Africa, with agricultural production potentially contracting between 2.6 percent in an optimistic scenario and up to 7 percent if there are trade blockages.
World Bank Vice President for Africa Hafez Ghanem said African economies were likely to suffer more than any countries due to the Covid-19.
“The Covid-19 pandemic is testing the limits of societies and economies across the world, and African countries are likely to be hit particularly hard,” Ghanem said.
The bank said the Covid-19 shock was hitting the region’s three largest economies - Nigeria, Angola and South Africa - on the back of persistently weak growth and investment, and declining commodity prices.
It said countries that depend on oil exports and mining would be hit the hardest as growth could fall by up to 7 percentage points in oil-exporting countries and by more than 8 percentage points in metals exporters.
South Africa has the largest number of confirmed cases in the region and strict measures imposed to contain the spread are already weighing on the economy.
The SA Reserve Bank this week said the 21-day nationwide shutdown was likely to reduce 2020 GDP by 2.6 percentage points, immediately, not counting indirect effects.
The Pulse report authors recommended that African policymakers focus on saving lives and protecting livelihoods by focusing on strengthening health systems and taking quick actions to minimize disruptions in food supply chains.
They also recommend implementing social protection programs, including cash transfers, food distribution and fee waivers, to support citizens, especially those working in the informal Goldman Sachs has said funding needs for the region could rise by $75bn as the pandemic hammer their economies.
It said a combination of lockdowns and lower revenues from exports and tourism would be severe enough to trigger the region’s first full-year recession since 1991, according to Goldman.
Goldman Sachs said Angola and Zambia may be the hardest-hit , with their economies shrinking by as much as 9 percent.
It said South Africa’s output will probably decrease by 6 percent and Nigeria’s 4 percent, while Ghana, Mozambique and Senegal will also contract if the shutdowns end up being “heavy,” according to the analysis.
The fiscal shortfall could squeeze the ability of some governments to service their debts. Zambia has already asked international banks for proposals on re-profiling its liabilities, while many others have Eurobonds trading at what are considered distressed levels.
“Possibly the most severe impact of the crisis will be on already stretched fiscal balances,” Dylan Smith and Andrew Matheny, the bank’s economists in London, said in a note this week. “Budget deficits would likely rise from an average of around 3.5 percent to high single digits, even before any loosening to soften the economic effects of the corona-crisis.”
If measures such as tax cuts that some governments, including Kenya’s, have already announced are included, the financing gap might end up being higher, they said.