Africa Has to Weather Covid Trauma Without Massive Stimulus

(Bloomberg) -- For advanced economies dealing with economic disruptions from the coronavirus pandemic, the response of choice has been massive stimulus packages. Africa is doing without them.

While central banks and governments in North America, Asia and Europe have offered trillions of dollars to prop up businesses hit by lockdowns and provide a safety net for the swelling ranks of the unemployed, a lack of liquidity restricts African governments from providing similar relief.

South Africa, the continent's most industrialized economy, announced a 500 billion rand ($29.5 billion) package, with less than half of that, or about 3% of gross domestic product, that's new spending. Ivory Coast came up with a support plan of $3 billion, or 5% of the world's top cocoa grower's output. Direct fiscal support in Angola, Ghana, Kenya and Nigeria averages just 0.3% of GDP this year, according to Bloomberg Economics.

That compares with stimulus worth 15% of GDP in the U.S. and 12% in Canada. Japan's stimulus, including existing measures, equates to 42% of GDP.

“All these countries need is the will,” Senegal's President Macky Sall said of richer nations' pandemic responses at a May 19 New York Forum Institute webcast. Others simply “cannot mobilize $2 trillion or $3 trillion to deal with the health crisis and its fallout.”

Multilateral lenders and country creditors have stepped in. More than a third of the nations who've received emergency World Bank support are African and the International Monetary Fund has approved more than $13 billion in rapid funding for countries on the continent. The Paris Club suspended debt repayments for seven low-income countries under an initiative backed by the Group of 20 leading economies.

Fiscal Buffers

“Everyone's impacted and all countries are trying to protect their most vulnerable households and businesses,” Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital, said by phone on May 21. “We don't have the fiscal buffers and savings in Africa to put forward large fiscal stimulus packages like you're seeing in the West.”

Years of poor fiscal discipline have made some African economies even more vulnerable to the crisis. Even before the pandemic, rising interest costs were crowding out crucial social and health spending.

The continent has averted worst-case health outcomes, recording fewer than 5,000 Covid 19-related deaths, less than 2% of global fatalities, but like elsewhere, strict lockdowns have stripped many of their livelihoods. Three-quarters of Africa's working population toils in the informal sector, according to a 2018 World Resources Institute report.

That means that even if governments did provide support, many workers would be out of reach of official government programs, such as South Africa's Unemployment Insurance Fund.

Less Contagion

At the same time, the predominance of the informal sector could offer some protection and help African economies rebound more quickly than advanced counterparts, said Amaka Anku, Eurasia Group's Africa head in a May 22 interview. They're less leveraged and less interlinked, “so there's not as much of a contagion effect,” she said.

But the economic shock could still be devastating on a continent that's home to about half the world's poor. Many African countries are pushing for a debt standstill to free up funds to focus on supporting citizens.

“The western world can print $8 trillion to support their economies in these extraordinary times and we are still being thrown a classical book with classical responses,” Ghana's Finance Minister Ken Ofori-Atta said at a June 3 conference.

What Bloomberg's Economist Says

“The fiscal response Africa desperately needs has been tempered by varying combinations of high indebtedness, weak institutions and tightening financial conditions. Although the IMF and G-20 debt relief and concessional loans have helped, it is far from enough. This will make it difficult for most countries to lay the foundation for a swift recovery once the intense phase of the pandemic has passed.”