The International Monetary Fund (IMF) has cautioned Sub-Saharan African countries to continue governance reforms that will improve trust in the rule of law and improve business conditions to encourage external support.
In its 2020 Regional Economic Outlook on Sub-Saharan Africa, the IMF recognizes that, unlike Europe, the United States, Latin America and parts of Asia, where the infection rate of COVID-19 has been high and devastating leading to the closure of economies of those countries, the infection rate on the sub-Saharan region has been relatively low. However, the imposition of lockdowns dropped regional activity sharply during the second quarter of 2020.
The IMF predicts, however, that with the loosening of containment measures, coupled with higher commodity prices and easing financial measures, there have been some tentative signs of a recovery in the second half of the year and the region is projected to contract by 3.0 percent in 2020.
According to the IMF, the largest impact of the crisis on growth in Sub-Saharan Africa has been for tourism-dependent economies, while commodity-exporting countries would include a gradual unwinding of crisis-specific lifelines, a rebalancing of fiscal spending to support aggregate demand, and a continuation of accommodative monetary policy wherein inflation pressures remain muted.
Liberia is a donor-dependent country that seeks assistance from partners every year to augment its fiscal budget. For instance, in 2020 alone, at least US$100 million from international partners has been mobilized in favor of Liberia to fight the Coronavirus, according to IREDD.
“Indeed, the region entered the COVID-19 crisis with significantly less fiscal space than it had at the onset of the global financial crisis and has also generally been more constrained than in other parts of the world. Countries have had to adapt their policy response accordingly and develop new and innovative ways of channeling scarce resources to those who need them most,” the IMF said, adding, “The burden on monetary and prudential policies has also increased, along with the use of temporary emergency measures such as price ceiling on essential items.”
The financial governing body also indicated that limited resources will mean that policymakers aiming to rekindle their economies will have some difficult choices, and amid that, 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,” noted the IMF.
Looking ahead, the IMF noted that regional growth is forecast at 3.1 percent in 2021. This accordingly 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 according to IMF prediction will include an improvement in exports and commodity prices as the world economy recovers, along with a recovery in both private consumption and investment.