Covid-19: Africa will Get a Meagre Share of the Global Stimulus

• The world has mobilized $9trn in fiscal and monetary to reduce the economic challenges caused by the coronavirus pandemic, but Africa’s share of global stimulus will amount to a meagre 2% or less.
• In the next six months, Organisation for Economic Cooperation and Development countries’ debt-to-GDP levels are projected to rise and reach 100%
• The good news for Africa face of the meagre stimulus is that the region has come a long way in economic governance.

The world has mobilized $9trn in fiscal and monetary support amid the coronavirus pandemic, but Africa’s share of global stimulus will amount to a meagre 2% or less.

The Coronavirus pandemic has made crucial the need to mitigate the economic collapse.

“That amounts to almost 10% of global GDP. When you look at the African context, you struggle to go beyond 2%,” according to Admassu Tadesse, the president and chief executive of the Trade Development Bank.

“Unfortunately, our part of the world is not benefiting in any significant way from the huge global fiscal stimulus that has been announced,” Tadesse added.

Trade Development Bank is a development finance institution which serves the communities of Southern and Eastern Africa.

The consolation of Africa, and the best bet for economic recovery, will lie in debt relief. Tadesse made the remarks on Thursday during a Deloitte digital dialogue on sustainable economic growth in a post-coronavirus environment.

Jennifer Blanke, the vice-president of the African Development Bank which focuses on agriculture and human and social growth, and Shamina Singh, the founder and president of the Mastercard Centre for Inclusive Growth, were among the other speakers who provided insight during the digital dialogue.

“The debt relief being discussed will go a long way in adding … [to] that 2%, maybe getting it up to 5% or 6%,” says Tadesse.

Such debt efforts will have to come from the foreign currency side, where most countries face higher borrowing costs due to declining currency exchange rates.

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The worldwide lockdowns that imposed extreme restrictions on the flow of products have made it worse. It has reduced the capacity of States to produce foreign currency earnings by exports.

The median level of fiscal deficits is near 4%. “We know the 6% rule that has been applied historically. From that perspective, there is a little room to manoeuvre.”

Only eight African states have double-digit inflation. “… Maybe one or two have triple [inflation]. You are looking at about forty-something countries sitting with an inflation level of reasonable single digit[s].”

In the next six months, Organization for Economic Cooperation and Development countries’ debt-to-GDP levels are projected to rise and reach 100%. African countries are in the 50 percent category. The debt funding coming into the region did not materialize in real assets until 30 to 40 years ago.

There are huge railway projects from Ethiopia and Kenya to Tanzania if you cast your eyes upon East Africa. Such infrastructure programs collectively contribute to $20bn of investment in these regional economies.

But “we’ve not yet at that level where we’re seeing enough activity come out of those sizeable investments. There’s a strong case to be made for giving time, and that comes into the debt issue,” says Tadesse.

The good news for Africa face of the meagre stimulus is that the region has come a long way in economic governance.

“If you look at the macroeconomic ratios around fiscal deficits or inflation, and general levels of debt sustainability in terms of external debt as a proportion of GDP. All these ratios are not comfortable, but they are not as bad as we make them out to be,” according to Tadesse.