The African Development Bank (AfDB) in their African Economic Outlook 2020 Supplement says that the novel coronavirus will impact African economies’ growth in 2020. However, the extent is still unknown at the moment.
The African Development Bank (AfDB) says that Africa is inadequately prepared to contain the coronavirus spread. The pandemic poses a major threat to Africa’s ill-prepared public health systems to handle the aftermath.
In this case, AfDB estimates that between 28.2 and 49.2 million more Africans risk being pushed into extreme poverty. In 2021, the number of extreme poor could increase by 34–49.2 million due to the pandemic as GDP growth continues to fall below population growth rates.
Furthermore, AfDB remains pessimistic that labor stats will record dismal performance. The lender projects that 25 to 30 million jobs could be lost due to the pandemic.
The brunt will be mostly felt by the working poor, who account for almost half of the employed. And the crisis would also affect the nature of surviving jobs since wages and working hours for those in the formal sector could be downgraded.
Policy Reforms
AfDB opines that given the global scale of the COVID-19 pandemic, the response must be coordinated, targeted, and rapid to limit the impacts on economies.
African governments’ response must involve a public health response to contain the spread of the virus and minimize fatalities, a monetary policy response to ease liquidity constraints and solvency risks, a fiscal response to cushion the economic impacts of the pandemic on livelihoods.
Public Health Responses
Countries should develop effective information sharing and communication strategies to disseminate accurate information on coronavirus symptoms, prevention, and treatment. This will contain coronavirus spread and reduce public panic and misinformation.
In addition, there should be the redirection of resources to the public health sector and develop sound health emergency plans. In this case, governments will prioritize investment in health preparedness to update and upgrade healthcare systems. This involves increasing the number of healthcare workers through education systems.
Fiscal Policy Responses
On the fiscal front, AfDB encourages African governments to support businesses and households most affected stay afloat through targeted temporary tax relief, cash transfers, and hardship allowances.
Cash transfers and an extension of the period for filing taxes can be targeted to affected businesses or temporary subsidies to affected industries. On the other hand, relief assistance such as food rations or vouchers should be targeted for low-income households.
Monetary Policy Responses
Central banks have to chip in and ease financial conditions for affected businesses as banks suspect that firms may not repay loans on time, justifying the high borrowing costs. For instance, central banks can cut interest rates to inject liquidity and counteract tightening financial conditions.
Furthermore, AfDB recommends the use of macroprudential and unconventional monetary policy to support the economy. In this case, Central banks could resort to their own forms of quantitative easing, targeted at funding the most affected sectors such as firms in the hospitality and entertainment industry— airlines, hotel chains, logistics, and sports—by temporarily reprofiling or restructuring their debts.
Labor Markets Responses
Government response should target vulnerable groups, especially youth and women.
For formal sector workers, governments could defer payroll taxes for small and medium enterprises or create mechanisms for facilitating commercial credit lines that would be publicly funded.
For workers in the informal sector, an option is to provide cash transfers using digital technology tools such as mobile money transfer.
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