COVID-19 devastates African economies

African Ministers of finance, economic planning and development who concluded their 53rd round of meetings in Addis Ababa, Ethiopia, said the impact of COVID-19 on African economies was devastating.

“The impact of the pandemic on our economies has been devastating. For the first time in a quarter century, our economies are in recession. Real GDP growth contracted by 2.4 percent in 2020. Thirty million people lost their jobs and slipped into poverty. Our revenues plummeted while expenditures soared in response to the pressing needs of the crisis and the exigencies of climate change,” the Ministers said in their communique issued on Tuesday at the conclusion of the meeting.

“African countries are now allocating significant proportions of their budgets to implement policies that respond to the impact of extreme weather events, including droughts, floods, crop failures, and infrastructure destruction. In some cases, up to 10 per cent of GDP has already been diverted towards climate-change adaptation.”

“Our fiscal buffers are now truly depleted. These developments have undermined the economic outlook of several African countries, triggering credit rating downgrades in at least twelve African countries. Six African countries, including Sao Tome and Principe, the only African country set to graduate from LDC status, are now in debt distress.”

COVID-19 devastates African economies

“For those African countries that have been successful in regaining access to capital markets, the yield spreads on their sovereign bonds are excessive, ranging from 890 to 1,710 basis points for South Africa and Uganda, respectively. These premium rates will increase debt burdens and threaten the future debt sustainability of our nascent economies,” the communique stated.

“Notwithstanding our difficult fiscal positions, African countries exhibited resilience in their initial response to the pandemic. We achieved low infection rates by effective enforcement of social distancing and lockdown measures. We mobilized approximately $44 billion in domestic resources and, in a highly competitive and contested market, we coordinated our efforts to secure personal protective equipment (PPE) through pooled procurement facilitated by the African Medical Supplies Platform,” the Ministers said.

The Ministers meeting was opened on Monday with strong statements from high-level leaders, among them, the Prime Ministers of Ethiopia and Barbados, Abiy Ahmed, and Mia Motley respectively, commending Friday’s move by the world’s seven largest advanced economies to support the expansion of the IMF’s Special Drawing Rights to help developing countries cope with the coronavirus pandemic.