Covid-19: Nigeria, Ghana, Others To Lose $236.7bn GDP – AfDB

…Says 49.2 Million May Be Pushed Into Extreme Poverty

The Covid-19 induced economic crisis could cost Nigeria, Ghana and other countries within the African continent about $236.7bn in Gross Domestic Product.

The African Development Bank made the projection in its African Economic Outlook (Supplement) which was released on Tuesday.

Specifically, it estimated that Real GDP in Africa to contract by 1.7 per cent in 2020, dropping by 5.6 percentage points from the January 2020 pre-Covid–19 projection, if the virus has a substantial impact but of short duration.

The bank in the Report said if the health crisis continues beyond the first half of 2020, there would be a deeper GDP contraction in 2020 of 3.4 per cent, down by 7.3 percentage points from the growth projected before the outbreak of Covid–19.

Cumulatively, the bank projected that GDP losses could range between $173.1bn and $236.7bn in 2020–2021.

With the projected contraction of growth, the bank in the Report stated that Africa could suffer GDP losses in 2020 between $145.5bn (baseline) and $189.7bn (worst case), from the pre-Covid–19 estimated GDP of $2.59trn for 2020.

It said some losses would be carried over to 2021, since the projected recovery would be partial.

For the 2021 fiscal period, the AfDB projected that GDP losses could move from $27.6bn (baseline) up to $47bn (worst case) from the potential GDP of $2.76trn without the pandemic.

According to the bank, the most affected economies would be those with poor healthcare systems, as well as countries that rely heavily on tourism, international trade, and commodity exports.

It added that those African countries with high debt burdens and high dependence on volatile international financial flows could also be greatly affected by the negative impact of the pandemic.

The report stated, “The overall impact of the pandemic on socioeconomic outcomes remains uncertain, however.

“It will depend crucially on the unfolding epidemiology of the virus, the extent of its impacts on demand and supply, the effectiveness of public policy responses, and the persistence of behavioral changes.”

The pandemic had triggered a sudden uptick in inflation in the continent, in some cases by more than five per cent in the first quarter of 2020.

This was been caused by disruptions in the supply of food and energy, the bulk of which are imported.

But for many other countries, the drastic fall in aggregate demand due to the lockdown and other containment measures had eased inflationary pressures, especially among non-resource-intensive economies.

Overall, although headline inflation, which includes food and basic energy prices, had been projected to rise, core inflation might remain stable until demand picks up after the pandemic.

But the AfDB Report said that expansionary fiscal spending could double already high fiscal deficits

It stated, “The pandemic and its economic consequences are expected to trigger expansionary fiscal policy responses across all categories of economies in Africa.

“The implied expansionary fiscal stance would further widen fiscal deficits in the continent. “

In the 2020 fiscal period, the bank in the Report stated that increases in budgetary outlays on COVID–19 related health spending, unemployment benefits, targeted wage subsidies and direct transfers, and tax cuts and deferrals would add to sovereign debt burdens

It added, “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 beyond the pre-COVID trajectory in 2020 and 2021.

“The sovereign debt buildup is particularly worrisome because of its changing risk structure in Africa as a result of the increasing share of commercial debt— eurobonds and other private creditors and the high foreign currency denomination of Africa’s debt.

It also explained that Official Development Assistance, which had risen since 2016 by 1.2 per cent in 2018, could be constrained by the impact of the crisis on advanced economies.

The Report added, “The curve of the pandemic in Africa is flattening gradually. Between 28.2 million and 49.2 million more Africans could be pushed into extreme poverty.”

In terms of Foreign direct investment which picked up in 2018 by 10.9 per cent, reaching $45.9bn, and improved further to an estimated $49bn in 2019, the bank predicted that this is also expected to fall in 2020 as investors reduce or postpone their investments amid uncertainties.

In terms of fiscal policy responses to tackle the crisis, the Report called on governments with fiscal space to assist businesses and households most affected stay to afloat through targeted temporary tax relief, and cash incentives among others.