High debt levels among Sub Saharan Africa nations are likely to amplify the impacts of COVID19 on their economies. IMF Resident Representative for Kenya, Tobias Rasmussen, opines that pre-existing conditions such as high debt and countries’ high integration into global markets are likely to constrain policy response.
Coronavirus is impacting regional economies through four main channels; domestic containment measures, global demand and regional spillovers, external financing constraints, and lower commodity prices. Therefore, Rasmussen expects Sub Saharan Africa output to contract by around 1.5 percent in 2020.
Kenya got a $739 million loan from the IMF in May to cover fiscal and external financing needs. The loan has a 10 year maturity period with a 5.5 year grace period with nil interest accruals. Kenya’s growth projections have been revised to 0.8% in 2020, 5 percentage points below the pre-COVID 19 baseline.
Fiscal policy should prioritize timely and targeted support for households whose livelihoods are set to be upended by containment measures. In cases where fiscal space and financing allows, countries should consider targeted and temporary support for heavily impacted firms. Once crisis subsides, policy should ensure that fiscal paths revert to paths that ensure debt sustainability.
Monetary policy should take a supportive stance and provide liquidity support which many central banks are already doing. Countries with flexible exchange rates should allow rates to move. In instances where capital outflows risk triggering a financial crisis, governments should adopt a capital flow management measure.
He further recommends the adoption of a people-first approach to boost health spending as needed to counter the spread of the disease.