The International Monetary Fund (IMF) has stated that what began as a health crisis and now a major global economic crisis, may have a substantial economic impact on Nigeria and other sub-Saharan African countries.
According to the IMF, many countries in sub-Saharan Africa have limited room in their budgets to increase spending, as they have had to rely more on global capital markets since the financial crisis a decade ago.
Already, it has stated that the growth forecast in April’s regional outlook would be significantly lower, as slowdown will mean revenues take a hit, just as countries face additional public spending needs.
The IMF had on Monday, warned that the world might witness a global recession that is as bad as the 2008 financial crisis, as a result of the coronavirus pandemic. Though the growing presence of COVID‑19 in sub-Saharan Africa threatens the same human costs as elsewhere in the world, the Fund said the economic costs could be just as devastating.
To mitigate the impact of the pandemic, the IMF stated that fiscal policy would have to play a leading role in mitigating the shock, with fiscal positions reverting to medium‑term paths consistent with debt sustainability.
“Targeted cash transfers could also be considered to help individuals and households under strain. Where feasible, governments should consider targeted and temporary support for hard-hit sectors such as tourism. For instance, temporary tax relief through targeted reductions or delays in paying taxes could help address cashflow shortfalls for affected businesses.
“Easing monetary policy can complement fiscal efforts, especially with inflation in single‑digits in the vast majority of countries in the region. Financial measures can help minimize disruptions to much‑needed credit and liquidity for businesses, including central bank liquidity provision or temporary credit guarantees. For countries with flexible exchange rate regimes, the exchange rate should be allowed act as a shock absorber”, the IMF added.
While countries in sub-Saharan Africa are acting decisively, taking sweeping measures to halt the advance of the virus, with limits on public gatherings, public safety campaigns, and similar measures, the IMF stated that for the society’s most vulnerable in the region, “social distancing” is not realistic.
“The notion of working from home is only possible for the few. So, difficult decisions to close borders (to people, but not essential goods) are even more important. All the more so if we are to minimize added strain on already fragile health systems.
“The pandemic will have a substantial economic impact on sub-Saharan Africa, in three ways. One, the very measures that are crucial to slowing the spread of the virus will have a direct cost on local economies. The disruption to people’s daily lives means less paid work, less income, less spending, and fewer jobs. And, with borders closed, travel and tourism are quickly drying up, and shipping and trade are suffering.
“Two, global hardships will spill over to the region. The slowdown in major economies will see global demand fall. Disruptions to production and world supply chains will weigh more on trade. Tighter global financial conditions will limit access to finance. Countries are likely to also see delays in getting investment or development projects off the ground.
“Three, the sharp decline in commodity prices will hit oil exporters hard, compounding the first two effects. The price of oil has tumbled to levels not seen in decades. We don’t yet know where they will settle, but with oil prices already down by more than 50 percent since the start of the year, the impact will be substantial. We estimate that each 10 percent decline in oil prices will, on average, lower growth in oil exporters by 0.6 percent and increase overall fiscal deficits by 0.8 percent of GDP”, experts from the IMF, Karen Ongley and Abebe Aemro Selassie, added.