WED, APRIL 08 2020-theG&BJournal-‘’Unlike most advanced countries, or many emerging market countries, working from home is not going to be an option, but for a tiny fraction of the workforce. And in most sub-Saharan African countries, the vast majority of people work in the informal sector or in factories, or small and medium sized enterprises and the like.
Either of the enterprises, will not have the resources to sustain and keep people employed beyond a small number of days. Or, if you’re working in informal type activities, you have to go out on a daily basis to make a living. So working from home is not really an option. It’s really giving up on your livelihood. So in the end all measures governments can take to suppress and limit the spread of the disease is going to be very, very important.’’
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Such were the impressions of IMF Africa Department Head, Abebe Aemro Selassie Tuesday during an IMF PODCAST on what COVID-19 means for Sub-Saharan Africa.
Aemro Selassie also addressed a host of challenges the continent faces as fall-out of the coronavirus pandemic including the continents debt level, and how it has overwhelmed completely the health systems in advanced countries, which are way better staffed and much better equipped than those in most sub-Saharan African countries.
‘’My sense would be that if we have the same degree of spread, the health systems will not be able to cope. Which is why I think the measures countries have been trying to take to basically limit the importation of coronavirus cases by shutting borders to passengers, not goods, I should add, a very important caveat. I think those have been very understandable and very important measures to try and limit the number of cases being imported.’’
He becomes even less exuberant when the discussion shifted to the recent plunge in global oil prices. He says, this would be mainly impactful for the eight oil exporting countries in the region, Sub-Saharan Africa.
‘’I fear it’s going to be really quite a drastic shock. Already most of these countries were in a very a weak footing as a result of the decline in oil prices in 2014, ’15. So the impact will be quite severe on the fiscal accounts, on external accounts, and growth in many of the oil exporting countries.’’
He believes the net effects for oil importing countries also is going to be negative, because they are going to be facing a massively slower economic activity as a result of those measures they’re taking to suppress the disease.
‘’Shutting down their borders, which will stymie tourism, which will delay investment decisions that have to be made, financing arrangements that have to be facilitated. So all told, the exogenous shock that the region is going to be feeling, coupled with the domestic measures countries are undertaking, will have a very severe adverse impact on countries.’’
This time what we have is a situation where debt level is pronounced for the vast majority of countries. And also there’s much greater reliance on the financial markets. A lot more borrowing through Euro bonds, syndicated loans and the like.
‘’So there are three channels in which the impact of this pandemic is going to be felt. First and foremost, there is the measures that governments are taking to limit the spread of the disease-Limiting airline flights, limiting the number of gatherings, forcing the shutdown of some businesses and the like. Those are going to cause a really big drag on economic activity.
Second, the decline in economic activity in the rest of the world is going to be felt in the region also. What started as a health crisis, this health pandemic has morphed into a major global economic crisis with global GDP growth, to slump at the minimum to the levels that we saw during the global financial crisis this year. And this will have a drag in terms of demand for African exports in terms of investment decisions that non-residents would be undertaking in Africa, financing decisions. So this globally weaker environment will be a big drag. And the third channel is the sharp decline in commodity prices, and particularly of oil.
In the oil importing countries, which comprise the vast majority of countries in the region. Of course this declared oil price shock will not be as harmful. In fact, it could even be beneficial, because they’re oil importers, they will be facing lower oil bills. But of course the net effects for oil importing countries also is going to be negative, because they are going to be facing a massively slower economic activity as a result of those measures they’re taking to suppress the disease.
Shutting down their borders, which will stymie tourism, which will delay investment decisions that have to be made, financing arrangements that have to be facilitated. So all told, the exogenous shock that the region is going to be feeling, coupled with the domestic measures countries are undertaking, will have a very severe adverse impact on countries.
So what will it take to prevent the economies in Sub-Saharan Africa from faltering under this pressure of COVID-19? He was asked.
‘’Countries must do whatever they can to limit the spread of the disease, invest whatever it takes to really combat the disease and can bring it under control. That has to be the priority,’’ he said.
‘’So the right measure we feel is to try and have a counter-cyclical response to the crisis. Once the crisis ends, fiscal deficits can revert back to the medium term paths that are consistent with sustainability considerations.’’
‘’On the monetary policy side, where exchange rates are flexible, allowing that rates to move, to absorb some of the shock we feel will be important. Some monetary easing also, could be the response. Again, this depends very much on country circumstances, but monetary policy we feel also has a role to play in being accommodative overall. And also looking at to make sure that financial sector can be protected through regulatory considerations that central banks can take.
So this policy response should help. Of course the big constraint in many of our countries in the region, is to having an expansion, a supportive fiscal policy stance is the lack of financing. And I think this is where the international community can come to support.
Limited financing is what stops countries from pursuing supportive policies when they’re hit by shocks in the region, he noted.
‘’Which is why we’re working incredibly hard with other international financial institutions to make sure that African countries should not have to go at it alone. There’s no bigger priority for our institution than making sure that the necessary financing that countries need is provided. And the IMF is doing its utmost to make sure that we can have financing available as quickly as possible.’’
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