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Sub-Saharan Africa may face $290 bln funding gap as external sources dry ~IMF

By on October 22, 2020 0 98 Views

By Samuel Bankole

The International Monetary Fund (IMF) has projected that Sub-Saharan Africa could face a financial gap in the order of $290 billion in the next three years.

The IMF said a higher financing gap could force countries to adopt a more abrupt fiscal adjustment, which in turn would result in a weaker recovery.

In its latest Regional Economic Outlook for Sub-Saharan Africa, the Fund projected that the economy of the region will contract by 3.0 percent in 2020, but see a recovery of about 3.1 percent in the following year.

“But looking ahead, sub-Saharan Africa faces significant financing gaps. If private financial inflows remain below their pre-crisis levels—and even taking into account existing commitments from international financial institutions and official bilateral creditors—the sub-Saharan Africa could face a gap in the order of $290 billion over 2020-23.

“Countries must also play their part—governance reforms will not only improve trust in the rule of law and improve business conditions, but also encourage external support.

“Despite the lingering effects of the crisis, the potential of the region and the resourcefulness of its people remain intact, and tapping this potential will be vital if the region is to find its way back to a path of sustainable and inclusive development.

In this context, the need for transformative reforms to promote resilience, lift medium-term growth and create the millions of jobs needed to absorb new entrants into labor markets is more urgent than ever. Priority reforms are in the areas of revenue mobilization, digitalization, trade integration, competition, transparency and governance, and climate-change mitigation.”

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The Fund said the outlook is subject to significant downside risks, particularly regarding the path of the pandemic, the resilience of the region’s health systems, and the availability of external financing.

“Overall, the region is projected to contract by 3.0 percent in 2020, the worst outlook on record. Tourism-dependent economies faced the largest impact, while commodity exporting countries have also been hit hard. Growth in more diversified economies will slow significantly, but in many cases will still be positive in 2020,” the IMF stated.

“Looking forward, regional growth is forecast at 3.1 percent in 2021. This is a smaller expansion than expected in much of the rest of the world, partly reflecting sub-Saharan Africa’s relatively limited policy space within which to sustain a fiscal expansion.

Key drivers of next year’s growth will include an improvement in exports and commodity prices as the world economy recovers, along with a recovery in both private consumption and investment.

“The current outlook is subject to greater-than-usual uncertainty with regard to the persistence of the COVID-19 shock, the availability of external financial support, and the development of an effective, affordable, and trusted vaccine,” Abebe Aemro Selassie, Director of the IMF’s African Department said.

IMF said transformative reforms are urgently needed for rekindling resilient growth, which will be difficult without external support, the IMF said in its latest Regional Economic Outlook for Sub-Saharan Africa

The need for transformative reforms to promote resilience—including revenue mobilization, digitalization, and fostering better transparency and governance—is more urgent than ever.

“Sub-Saharan Africa is contending with an unprecedented health and economic crisis,” stressed Abebe Aemro Selassie, Director of the IMF’s African Department.

“In just a few months, this crisis has jeopardized years of hard-won region’s development gains and upended the lives and livelihoods of millions.

“The onset of the pandemic was delayed in sub-Saharan Africa, and infection rates have been relatively low compared to other parts of the world. However, the resurgence of new cases in many advanced economies and the specter of repeated outbreaks across the region suggest that the pandemic will likely remain a very real concern for some time to come.

“Nonetheless, amid high economic and social costs, African countries are now cautiously starting to reopen their economies and are looking for policies to restart growth.

“With the imposition of lockdowns, regional activity dropped sharply during the second quarter of 2020, but with a loosening of containment measures, higher commodity prices, and easing financial conditions, there have been some tentative signs of a recovery in the second half of the year.

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