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Home Analysis After Covid-19: Reviving ruined economies using limited resources

After Covid-19: Reviving ruined economies using limited resources

by Tom Chiahemen
0 comment 4 minutes read

By JAMES ANYANZWA

East African governments are full of expectations that come 2021 their battered economies will get their mojo back amid concerns of limited resources facing policymakers out to revive their economies from the devastating effects of the Covid-19 pandemic.

Economists at Allianz SE, Germany-based multinational financial services company, note that while East Africa is poised to be the hotspot of the African economic recovery post the coronavirus crisis, finance ministers from the

region have plenty to ponder about, including looking at the right balance between fiscal and monetary policies to boost the economy against the need for debt sustainability, external stability, and longer-term credibility.

It is argued that East African governments will spend a significant portion of their revenues on debt servicing thereby reducing the funding for development projects amid diminishing revenue collections.

For example, Kenya is expected to spend close to 24.8 percent of its revenues on interest payments on loans next year (2021) followed by Uganda (18.9 percent), Tanzania (14.4 percent), Rwanda (8.6 percent).

The economists expect the African economy to rebound by 3.2 percent in 2021. “Covid-19 infection rates remained relatively low on the continent compared with the other parts of the World. However, African economies were severely hit by the crisis due to weak internal and external demand and commodity price shocks,” said Ludovic Subran, chief economist, Allianz SE.

“In 2021, the recovery will be essentially driven by stronger domestic and world demand and trade, higher commodity prices and resuming tourism activity.”

Private sector-led growth is expected to be key in post Covid-19 world but key challenges remain including basic infrastructure in energy and connectivity and attracting private investment to start the growth cycle in 2021.

In Africa, bank credit to private sector remains low and has not recovered to its pre-crisis levels in 2008 in most cases.

The banking sector is overburdened by non-performing loans to public companies in South Africa, Ghana and Egypt

China is expected to be helpful in short term recovery of African economies through exports to the World’s biggest economy and foreign direct inflows (FDI) inflows from Beijing.

According to the International Monetary Fund (IMF) the outlook for Africa’s economic revival is subject to greater-than-usual uncertainty and hinges on both the persistence of the Covid-19 shock, the availability of external financial support, and the availability of an effective, affordable,

and trusted vaccine. Other risks are political instability or the return of climate-related shocks, such as floods or droughts.

“Nonetheless, amid high economic and social costs, countries are now cautiously starting to reopen their economies and are looking for policies to restart growth,” says the IMF

“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.”

Current projections suggest that global growth will decline by 4.4 percent in 2020 and recover by 5.2 percent in 2021, with a relatively rapid recovery projected for China and key economies in the euro area, and a somewhat more subdued expansion in the United States.

During the first half of 2020 global trade declined by 3.5 percent, global travel and tourism came to a halt while oil prices settled at $41.5 per barrel (32 percent down from 2019). Prices of basic metals and other commodities also declined.

Capital outflows from emerging and frontier markets surged at the onset of the crisis, causing a sharp widening of interest-rate spreads. Outflows from sub-Saharan Africa between February and March totalled $5 billion.

The average GDP growth for African countries is expected to contract by 4.2 percent in 2020 before rising by 3.2 percent in 2021 and 2.9 percent in 2022.

The Covid-19 crisis worsened fiscal imbalances – increasing public spending and loss of government revenues – and pushed up public debt to hardly sustainable levels.

Zambia is the first African country to default on its Eurobond obligations and is likely to be followed by others with maturing Eurobonds in 2022-2023.

The EastAfrican

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