Sub-Saharan Africa will be the world’s slowest growing region in 2021: IMF

In the April 2021 International Monetary Fund (IMF)’s Regional Economic Outlook for Sub Saharan Africa titled Navigating a Long Pandemic, it is reported that the region will be the slowest growing this year.

In the Executive summary of the report, it’s noted that Sub-Saharan Africa is still contending with unprecedented health and economic crisis. In the months since the October 2020 Regional Economic Outlook: Sub-Saharan Africa, the region has confronted a second coronavirus (COVID-19) wave that swiftly outpaced the scale and speed of the first. While this episode has eased, for now, many countries are bracing for further waves, particularly as access to vaccines remains scant.

The COVID-19 crisis of 2020 was a truly global tragedy—affecting both wealthy and poor countries alike.

The welcome global recovery in 2021, however, will be less evenhanded. Many advanced economies have secured enough vaccine doses to cover their own populations many times over and are looking to the second half of the year with a renewed sense of hope. In Africa, however, with limited purchasing power and few options, many countries will be struggling to simply vaccinate their essential frontline workers this year, and few will achieve widespread availability before 2023.

Similarly, IMF notes, the recovery in advanced economies will be driven in large part by the extraordinary level of policy support, including trillions in fiscal stimulus and continued accommodation by central banks. For countries in sub-Saharan Africa, however, this is generally not an option. If anything, most entered the second wave with depleted fiscal and monetary buffers.

“In this context, and despite a more buoyant external environment, sub-Saharan Africa will be the world’s slowest-growing region in 2021. The global economy improved more rapidly than expected in the second half of 2020, with spillovers to the region in the form of increased trade, higher commodity prices, and a resumption of capital inflows. Estimates now suggest that sub-Saharan Africa contracted by –1.9 percent in 2020. This is better than anticipated last October (–3.0 percent) but is still the worst result on record,” a part of the Executive summary reads.

IMF Report Executive Summary

Looking ahead, the region will grow by 3.4 percent in 2021, up from 3.1 percent projected in October, and supported by improved exports and commodity prices, along with a recovery in both private consumption and investment. However, per capita output is not expected to return to 2019 levels until after 2022—in many countries, per capita incomes will not return to pre-crisis levels before 2025.

As in October, the current outlook is still subject to greater-than-usual uncertainty, and risks remain dominated by the global pandemic. Sub-Saharan Africa could well face repeated COVID-19 episodes before vaccines become widely available. Other key uncertainties include the availability of external finance (official and private), political instability, and the return of climate-related shocks, such as floods or droughts. More positively, an accelerated vaccine rollout—or a swift, cooperative, and equitable global distribution—could boost the region’s near-term prospects.

During the height of the crisis, policy discussion was often tailored to different phases of the pandemic: immediate actions to save lives and livelihoods; near-term initiatives to secure a recovery once the acute phase of the crisis had passed; and then longer-term measures to build a more resilient and sustainable economy. For sub-Saharan Africa, however, all these phases may overlap, leaving authorities in the position of trying to boost and

rebuild their economies while simultaneously dealing with repeated outbreaks as they arise.

The first priority is still to save lives. This will require added spending, not only to strengthen local health systems and containment efforts but also to ensure that the logistical and administrative prerequisites for a vaccine rollout are in place. For most countries, the cost of vaccinating 60 percent of the population will be sizable—representing an increase of up to 50 percent in existing health spending.

The next priority is to do whatever is possible to support the economy. Ultimately, however, this will require restoring the health of public balance sheets. In the context of limited fiscal space, regionwide deficits are expected to narrow by just

over 1½ percent of GDP in 2021, easing the average debt level back to about 56 percent of GDP.

Going forward, the general challenge for policymakers will be to create more fiscal space, through domestic revenue mobilization, prioritization, and efficiency gains on spending, or perhaps debt management. Beyond specific revenue and spending measures, authorities can also maximize fiscal space by improving their fiscal frameworks—a medium-term framework that credibly balances the need for short-term support with medium-term consolidation can contain borrowing costs and sustain confidence.

On debt, seventeen countries were either in debt distress or at high risk of distress in 2020, one more than before the crisis—these countries include a number of small or fragile states, and represent about one-quarter of the region’s GDP, or 17 percent of the region’s debt stock.

In this regard, the Group of Twenty (G20) Debt Service Suspension Initiative has delivered valuable liquidity support, providing $1.8 billion in assistance from June–December 2020, and offering $4.8 billion in potential savings over January–June 2021.

Nonetheless, some countries may need further assistance. Individual circumstances differ widely, but the G20 Common Framework can provide a treatment that is tailored to each economy’s specific requirements. For those with sustainable debt but persistent liquidity needs, the framework can help coordinate a rescheduling. For those with more fundamental sustainability concerns, it can help coordinate the necessary restructuring process.

Beyond fiscal policy, the region’s monetary authorities have generally been supportive. But against a background of rising food and energy prices, many are now running out of room—having loosened policy in 2020, most countries are now keeping policy rates on hold, and a few have reversed some

of last year’s rate cuts. Financial stability indicators displayed little change in 2020, but the full impact of the crisis has yet to be felt. Looking ahead, prolonged forbearance would merely mask the true state of the financial system and undermine its ability to support growth in the long term.

Employment fell by about 8½ percent in 2020, more than 32 million people were thrown into extreme poverty, and disruptions to education have jeopardized the prospects of a generation of schoolchildren.

However, despite scarring from the crisis, sub- Saharan Africa’s potential is still undeniable, and the need for bold and transformative reforms is more urgent than ever—these include revenue mobilization, digitalization, trade integration, competition, transparency and governance, and climate-change mitigation. In addition, with limited resources, reforms will need to prioritize those that boost resilience to future shocks, with an emphasis on sectors with the best return on growth and employment. In this regard, the experience of different countries during the crisis suggests the need to accelerate the region’s diversification agenda.

For the international community, ensuring vaccine coverage for sub-Saharan Africa is not simply an issue of local livelihoods and local growth. The broad regional coverage is also a global public good.

For every country, everywhere, the most durable recovery requires a global effort that covers everyone. Restrictions on the dissemination of vaccines or medical equipment should be avoided, multilateral facilities such as COVID-19 Vaccines Global Access (COVAX) should be fully funded, and channels should be put in place to ensure that excess doses in wealthy countries are redistributed quickly.

More broadly, to recover ground lost during the crisis, sub-Saharan Africa’s low-income countries face additional external funding needs of $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 $425 billion. These issues will be discussed at the forthcoming High-Level International Summit on Financing for Africa.

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. The extension of the G20 debt-service initiative to December 2021 and the new SuCommon Framework will be helpful in this regard, and a $650 billion special drawing rights allocation would provide about $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 mobilize private-sector funds, particularly in light of the region’s investment requirements.