The African Development Bank (AfDB) in their African Economic Outlook 2020 Supplement has posted a grim outlook for African economies in 2020.
Africa Macro-economic outlook
The bank projects that Africa’s GDP will contract by 3.4% in 2020, dropping by 7.3% from the pre-COVID19 growth projection. In addition, the bank says that cumulative GDP losses could range between $173.1 billion and $236.7 billion in 2020-2021.
With the projected contraction of growth, Africa could suffer GDP losses in 2020 between $145.5 billion (baseline) and $189.7 billion (worst case), from the pre-COVID–19 estimated GDP of $2.59 trillion for 2020AfDB Africa Economic Outlook
AfDB further says that some losses will be carried over to 2021 as the projected recovery will be partial. For 2021, AfDB projects GDP losses could be from $27.6 billion (baseline) up to $47 billion (worst case) from the potential GDP of $2.76 trillion without the pandemic.
The most affected economies are those with poor healthcare systems, those that rely heavily on tourism, international trade, and commodity exports. In addition, economies with high debt burdens and high dependence on volatile international financial flows will not be spared either.
African countries have witnessed a sudden uptick in inflation in some cases more than 5 percent in the Q1.2020. AfDB attributes the rise in inflation to disruption in supply of food and energy, the bulk of which are imported.
The lender worries that expansionary fiscal spending could double the already high fiscal deficits to 8 percent of GDP, in the baseline scenario, and to go as high as 9 percent in the worst-case scenario. This worsening fiscal position would be the result of above-the-line increases in budgetary outlays on COVID–19 related health spending, unemployment benefits, targeted wage subsidies, and direct transfers, and tax cuts and deferrals.
COVID19 will add to sovereign debt burdens as many countries in Africa entered the crisis period with high debt-to-GDP ratios, which are projected to increase further by up to 10 percentage points. This is particularly worrisome because of increasing share of commercial debt—Eurobonds and other private creditors—and the high foreign currency denominated debt.
AfDB maintains that the overall impact of the pandemic remains uncertain and will depend on the extent of its impacts on demand and supply and the effectiveness of public policy responses.