The Director of the IMF’s African Department, Abebe Aemro Selassie has stated that sub-Saharan Africa faces significant financing gaps which could rise to the tune of $290 billion between 2020 and 2023.
He stated this in a press release by the IMF on Thursday, October 22, 2020.
According to him, the Sub-Saharan African region is contending with an unprecedented health and economic crisis which has jeopardized years of hard-won region’s development gains and upended the lives and livelihoods of millions.
He stated that navigating such a complex policy challenge will not be easy and will require continued external support, without which many countries will struggle to simply maintain macroeconomic stability while meeting the basic needs of their population.
“… Sub-Saharan Africa faces significant financing gaps. If private financial inflows remain below their pre-crisis levels—and even taking into account existing commitments from international financial institutions and official bilateral creditors—the sub-Saharan Africa could face a gap in the order of $290 billion over 2020-23”.
He explained that, this is important because higher financing gap could force countries to adopt a more abrupt fiscal adjustment, which in turn would result in a weaker recovery.
Mr. Selassie indicated that the IMF has moved swiftly and disbursed about US$17 billion so far in 2020 which is about 12 times more than what the IMF typically disburse each year to help cover a significant portion of the region’s needs and to catalyse additional support from the international community.
He further explained that amid high economic and social costs, African countries are now cautiously starting to reopen their economies and are looking for policies to restart growth. With the imposition of lockdowns, regional activity dropped sharply during the second quarter of 2020, but with a loosening of containment measures, higher commodity prices, and easing financial conditions, there have been some tentative signs of a recovery in the second half of the year.
Overall, the region is projected to contract by 3.0 percent in 2020, the worst outlook on record and is expected to grow at 3.1 percent in 2021. Tourism-dependent economies face the largest impact, while commodity exporting countries have also been hit hard.
He is however optimistic that growth in more diversified economies will slow significantly, but in many cases will still be positive in 2020.
He added that the current outlook is subject to greater-than-usual uncertainty with regard to the persistence of the COVID-19 shock, the availability of external financial support, and the development of an effective, affordable, and trusted vaccine.
Against this backdrop, Mr. Selassie pointed to a number of policy priorities going forward.
“Where the pandemic continues to linger, the priority remains to save lives and protect livelihoods. For countries where the pandemic is under greater control, limited resources will mean that policy makers aiming to rekindle their economies will face some difficult choices. Both fiscal and monetary policy will have to balance the need to boost the economy against the need for debt sustainability, external stability, and longer-term credibility.
“Financial regulation and supervision will have to help crisis-affected banks and firms, without compromising the financial system’s ability to support longer-term growth. And these efforts must also be balanced against the need to maintain social stability while simultaneously preparing the ground for sustained and inclusive growth over the long term”.
He added that despite the lingering effects of the crisis, the potential of the region and the resourcefulness of its people remain intact, and tapping this potential will be vital if the region is to find its way back to a path of sustainable and inclusive development.
Mr. Selassie further pointed to the need for transformative reforms to promote resilience, lift medium-term growth and create the millions of jobs needed to absorb new entrants into labour markets is more urgent than ever. Priority reforms are in the areas of revenue mobilization, digitalization, trade integration, competition, transparency and governance, and climate-change mitigation.