For advanced economies dealing with economic disruptions from the coronavirus pandemic, the response of choice has been massive stimulus packages. Africa is doing without them.
While central banks and governments in North America, Asia and Europe have offered trillions of dollars to prop up businesses hit by lockdowns and provide a safety net for the swelling ranks of the unemployed, a lack of liquidity restricts African governments from providing similar relief.
South Africa, the continent’s most industrialized economy, announced a 500 billion rand (about 23 trillion) package, with less than half of that, or about 3 percent of gross domestic product, that’s new spending. Ivory Coast came up with a support plan of $3 billion, or 5% of the world’s top cocoa grower’s output. That compares with stimulus worth 15% of gross domestic product in the U.S. and 12 percent in Canada. Japan’s stimulus, including existing measures, equates to 42 percent of the GDP.
“All these countries need is the will,” Senegal’s President Macky Sall said of richer nations’ pandemic responses at a May 19 New York Forum Institute webcast. Others simply “cannot mobilize $2 trillion or $3 trillion to deal with the health crisis and its fallout.”
Multilateral lenders and country creditors have stepped in. More than a third of the nations who’ve received emergency World Bank support are African and the International Monetary Fund has approved more than $13 billion in emergency funding for countries on the continent. The Paris Club suspended debt repayments for seven low-income countries under an initiative backed by the Group of 20 leading economies.
“Everyone’s impacted and all countries are trying to protect their most vulnerable households and businesses,” said Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital. “We don’t have the fiscal buffers and savings in Africa to put forward large fiscal stimulus packages like you’re seeing in the West.”
Years of poor fiscal discipline have made some African economies even more vulnerable to the crisis. Even before the pandemic, rising interest costs were crowding out crucial social and health spending.
The continent has averted worst-case health outcomes, recording fewer than 5 000 Covid 19-related deaths, less than 2 percent of global fatalities, but like elsewhere, strict lockdowns have stripped many of their livelihoods. Three-quarters of Africa’s working population toils in the informal sector, according to a 2018 World Resources Institute report.
That means that even if governments did provide support, many workers would be out of reach of official government programs, such as South Africa’s Unemployment Insurance Fund.
At the same time, the predominance of the informal sector could offer some protection and help African economies rebound more quickly than advanced counterparts, said Amaka Anku, Eurasia Group’s Africa head in a May 22 interview,” she said.—Bloomber