“This is a crisis where we need to act now” – IMF’s Abebe Selassie
The sub-Saharan economy is set to shrink by 1.6% in 2020, and real per capita income to fall by even more -- 3.9% on average, says the International Monetary Fund (IMF).
That is the lowest growth figure for Africa since 1970.
“This is a crisis where we need to act now”, says Abebe Aemro Selassie, the Director of the IMF’s African Department, who spoke to The Africa Report from the virtual IMF/WB Spring Meeting.
And the IMF has responded quickly, doubling access to it’s rapidly disbursing facility, pledging $18bn, and helping to mobilise official creditors to the tune of $57bn in loans and grants for Africa in 2020.
“Given we don’t have traditional social safety nets and unemployment insurance schemes,” says Selassie, “in a crisis where you are asking the population to stay home to sacrifice their livelihoods, it really is important that governments provide support to the population.”
This may surprise students of previous iterations of the IMF’s support for lean government; but in recent years the Fund has started to examine the effect of inequality on growth.
The IMF believes one of greatest challenges after the health crisis is solvency.
“[The ability of African countries] to borrow from markets has been curtailed”, says Selassie, with the Eurobond market essentially now shut for SSA sovereigns.
Once the immediate cash crunch has been solved, there will be the economic crisis to manage.
With the large outflows from emerging markets, currencies have been badly hit, making imports more expensive. That will spike inflation in many countries.
And Africa’s two big economic trading partners — with whom trade may have helped pull the continent out of the mire — will be complicated.
According to the latest IMF Report, “Among the sub-Saharan region’s key trading partners, the euro area is expected to contract (from 1.2% to -7.5% in 2020), and growth is China is to slow considerably (from 6.1% to 1.2%)”
Finally, the commodities on which many African countries depend have lost their value.