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Covid-19 will leave nations broke, IMF warns

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LOW-INCOME countries in sub-Saharan Africa, such as Zimbabwe, face additional external funding needs of US$245 billion over a five-year period, to recover ground lost during the Covid-19 crisis, the International Monetary Fund (IMF) has said.

DUMISANI NYONI
The entire sub-Saharan Africa region will need US$425 billion.

In its April 2021 regional economic outlook report for sub-Saharan Africa titled “Navigating a Long Pandemic”, the IMF said the money would help strengthen the pandemic response spending and accelerate income convergence.

“More broadly, to recover ground lost during the crisis, sub-Saharan Africa’s low-income countries face additional external funding needs of US$245 billion over 2021–25, to help strengthen the pandemic response spending and accelerate income convergence. The corresponding figure for all sub-Saharan Africa is US$425 billion,” the report reads.

“The region can cover only a portion of these needs on its own. The international community, including the IMF, has moved swiftly to help cover emergency needs over 2020. But further support will be essential — including through more concessional financing, and more help to deal with the region’s debt.”

A year ago, most African countries swiftly implemented national lockdowns to contain the virus and spare the region the worst of the crisis. While vital in saving lives, these measures added to the global recession and had a dramatic impact on local economies, prompting sub-Saharan Africa to shrink by an extraordinary -1.9% in 2020 — the worst outcome on record, the IMF said.

The international lender said the extension of the Group of 20 (G20) debt service initiative to December 2021 and the new common framework will be helpful in this regard, and a US$650 billion special drawing rights allocation would provide about US$23 billion to sub-Saharan African countries to help boost liquidity and fight the pandemic.

“Over the long term, however, official resources may not be sufficient. The legacy from this crisis may also provide a valuable opportunity for innovative new financing approaches, which may help sub-Saharan Africa mobilise private-sector funds, particularly in light of the region’s investment requirements,” it said.

The region entered the Covid-19 crisis with less fiscal space than at the onset of the global financial crisis, with 16 countries either at high risk of debt distress, or already in distress in 2019, the IMF said.
It said the G20 Debt Service Suspension Initiative has provided some scope to maintain critical spending, by temporarily deferring payments without reducing the overall level of debt.

“But Covid-19-related fiscal packages in the region averaged only 2.6% of GDP in 2020. This is markedly less than the amounts spent in other regions (spending in advanced economies was almost triple this amount at 7.2% of GDP in 2020) and has often come at the expense of essential spending in other areas,” the IMF said.

“The result is that most countries in the region have been unable to cushion their economies to the same extent as elsewhere, and have consequently suffered greater output losses.”

Although policies were less supportive than in many other regions, the IMF said public debt nonetheless increased in sub-Saharan Africa to almost 58% of GDP in 2020 — the highest level in almost 20 years and an increase of more than 6% points in just one year.

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