INTERNATIONAL MONETARY FUND

REGIONAL ECONOMIC OUTLOOK

SUB-SAHARAN AFRICA

APR 2020

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World Economic and Financial Surveys

Regional Economic Outlook

Sub-Saharan Africa

COVID-19: An Unprecedented Threat to Development

APR 20

INTERNATIONAL MONETARY FUND

©2020 Cataloging-in-Publication Data

IMF Library

Names: International Monetary Fund, publisher.

Title: Regional economic outlook. Sub-Saharan Africa : COVID-19 : an unprecedented threat to development.

Other titles: Sub-Saharan Africa : COVID-19 : an unprecedented threat to development. | World economic and financial surveys.

Description: Washington, DC : International Monetary Fund, 2020. | World economic and financial surveys. | April 20. | Includes bibliographical references.

Identifiers: ISBN 9781513536835 (English Paper)

9781513538495 (English Web PDF)

9781513538501 (French Paper)

9781513538532 (French Web PDF)

Subjects: LCSH: Africa, Sub-Saharan—Economic conditions. | Coronavirus infections—Economic aspects—Africa, Sub-Saharan. | Economic development—Africa, Sub-Saharan. | Africa, Sub-Saharan—Economic policy.

Classification: LCC HC800.R4 2020

The Regional Economic Outlook: Sub-Saharan Africa is published twice a year, in the spring and fall, to review developments in sub-Saharan Africa. Both projections and policy considerations are those of the IMF staff and do not necessarily represent the views of the IMF, its Executive Board, or IMF Management.

Publication orders may be placed online, by fax, or through the mail: International Monetary Fund, Publication Services P.O. Box 92780, Washington, DC 20090 (U.S.A.)

Tel.: (202) 623–7430 Fax: (202) 623–7201

E-mail : publications@imf.org

www.imf.org

www.elibrary.imf.org

Contents

• Acknowledgments

• Executive Summary

• COVID-19: An Unprecedented Threat to Development

  • Growth Prospects in 2020: The COVID-19 Pandemic and The Oil Price Slump

  • Policy Priorities

• 2. Adapting to Climate Change in Sub-Saharan Africa

• Introduction

• Main Findings

• Economic Impact of Climate Change

• What Does Climate Change Mean for Sub-Saharan Africa?

• Climate Change Matters for Economic Growth and Inequality

• Adaptation Strategies

• Safeguarding Food Security

• Shaping Broad-Based Adaptability

• Financing Adaptation

• 3. Digitalization in Sub-Saharan Africa

• Trends in Digitalization: Where Does Sub-Saharan Africa Stand?

• Measuring Digitalization

• Sub-Saharan Africa Is Rapidly Becoming Digitally Connected

• Large Differences in Connectivity within the Region

• Digital Depth in Sub-Saharan Africa is Still Relatively Low

• The Impact of Digitalization on Economic Performance

• Macroeconomic Performance

• Firm-level Performance

• The Impact of Digitalization on Macroeconomic Policies

• Tool for More Efficient and Effective Fiscal Policy

• Monetary and Financial Sector Policies

• Policies to Reap the Rewards of Digitalization and Manage Risks

• Investing in Infrastructure

• Investing in Policy Frameworks

• Investing in People and Skills

• Investing in Resilience Against Digital Risks

• Statistical Appendix

• Box

• 1.1. Evidence and Lessons from the 2014–15 Ebola Outbreak in West Africa

• 2.1. What’s the Difference between Mitigation and Adaptation?

• 2.2. Case Studies: Adaptation Strategies Taken in Sub-Saharan Africa

• 2.3. Macroeconomic Gains from Resilient Infrastructure

• 3.1. Digitalization and Responding to the COVID-19 Pandemic in Sub-Saharan Africa

• 3.2. Digitalization, Corruption, and Trust in Africa

• Figures

• 1.1. World Oil Prices, in Real Terms

• 1.2. Sub-Saharan Africa: Emerging Market Bond Index Spreads

• 1.3. Sub-Saharan African Frontier and Emerging Markets: Cumulative Portfolio Flows

• 1.4. Selected Sub-Saharan African Countries: Cumulative Number of COVID-19 Cases

• 1.5. Sub-Saharan Africa: COVID-19 Cases and Health Spending

• 1.6. Sub-Saharan Africa: Vulnerability of Countries to COVID-19 Shock

• 1.7. Sub-Saharan Africa: Real GDP Growth, 1970–20

• 1.8. Projected Changes in Commodity Prices

• 1.9. Sub-Saharan Africa: Real GDP Growth, 2019–20

• 1.10. Downside External Risk Scenario: Deviation from Baseline GDP Growth, 2020

• 1.11. Sub-Saharan Africa: Measures Implemented to Combat COVID-19

• 1.12. Sub-Saharan Africa: Interest Payments as a Share of Revenues, 2010–20

• 1.13. Sub-Saharan Africa: Public Debt to GDP, 2017–25

• 1.14. Sub-Saharan Africa: Changes in Monetary Policy Rates since the End of 2019

• 1.15. Sub-Saharan Africa: Eurobond Issuances and Maturities, 2020–25

• 1.16. Sub-Saharan Africa: Exchange Rates

• 1.1.1. Selected Countries: Evolution of the Ebola Outbreak, Cases and Deaths

• 1.1.2. Selected Countries: Cumulative Difference in Government Revenue between Actual and October 2013 Projection

• 2.1. World and Sub-Saharan Africa: Change in Temperature Relative to 1980, Celsius

• 2.2. Sub-Saharan Africa and the World: Frequency of Natural Disasters Relative to the 1980s

• 2.3. Sub-Saharan Africa: Temperatures, Precipitation, and Water Intensity, 1983–2017

• 2.4. Sub-Saharan Africa: Annual Impacts of Natural Disasters by Country, 2000–18

• 2.5. Selected Economies: Impact of Weather Anomalies on Nightlights

• 2.6. Sub-Saharan Africa: Evolution of Real GDP Growth around Disruptive Droughts, Floods, and Storms, 1990–2018

• 2.7. Selected Economies: Medium-Term Impact of Frequency and Intensity of One Additional Natural Disaster on Growth

• 2.8. Sub-Saharan Africa: Evolution of Macroeconomic Indicators around Disruptive Droughts, Floods, and Storms, 1990–2018

• 2.9. Sub-Saharan Africa and the World: Agricultural Dependence and Poverty, 2018 or Latest

• 2.10. Selected Sub-Saharan African Countries: Probability of Food Insecurity for a Household Hit by a Shock

• 2.11. Selected Sub-Saharan African Countries: Impact of Key Measures on Crop Yields for Households with Crop Damage

• 2.12. Sub-Saharan Africa: Reduction in Impact of Disasters on Per Capita Annual Medium-Term Growth when Structural Factors Improve to the Emerging Market and Developing Economy Average

• 2.13. Beira Port in Mozambique: Total Traffic, 2018–19

• 2.14. Sub-Saharan Africa: Post-Disaster Savings Relative to Cost of Building Resilience

• 2.3.1. Sub-Saharan Africa: Simulated Impacts of Natural Disaster

• 3.1. Enhanced Digital Access Index (EDAI)

• 3.2. Sub-Saharan Africa: Enhanced Digital Access Index—Evolution of Sub-Indices

• 3.3. World: Internet Penetration, 2017

• 3.4. Sub-Saharan Africa: Enhanced Digital Access Index by Income Group

• 3.5. Sub-Saharan Africa: Fixed (Wired)-Broadband Speed

• 3.6. Sub-Saharan Africa: Individuals Using Internet

• 3.7. Selected Regions: Email Use by Firms

• 3.8. Sub-Saharan Africa: Email Use by Firm Characteristics

• 3.9. Transmission Channels in Digitalizing the Fiscal Sector

• 3.10. Open Budget Score and e-Services

• 3.11. Sub-Saharan Africa: Deposit Accounts and Mobile Money Accounts

• 3.12. Evolving Structure of the Financial Sector

• 3.1.1. Selected Regions: Percent of Countries Reporting Remote Work

• 3.1.2. Sub-Saharan Africa: COVID-19 Policy Stringency Index by Quartiles of Internet Access

• 3.1.3. Sub-Saharan Africa: COVID-19 Community Mobility

• 3.2.1. Sub-Saharan Africa: Estimated Effect of Digitalization on Corruption Perception and Trust

Acknowledgments

The April 2020 issue of the Regional Economic Outlook: Sub-Saharan Africa (REO) was prepared by a team led by Siddharth Kothari and Xiangming Fang under the supervision of Papa N’Diaye and Catriona Purfeld.

The team included Cian Allen, Reda Cherif, Jesus Gonzalez-Garcia, Michael Gorbanyov, Cleary Haines, Andresa Lagerborg, Franck Ouattara, Andrew John Tifn, and Manchun Wang.

Charlotte Vazquez was responsible for document production, with assistance from Maria Ines Canales.

The editing and production were overseen by Cheryl Toksoz of the Communications Department.

The following conventions are used in this publication:

• In tables, a blank cell indicates “not applicable,” ellipsis points (. . .) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

• An en dash (–) between years or months (for example, 2009–10 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).

• “Billion” means a thousand million; “trillion” means a thousand billion.

• “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

Executive Summary

Sub-Saharan Africa is facing an unprecedented health and economic crisis. One that threatens to throw the region off its stride, reversing the development progress of recent years. Furthermore, by exacting a heavy human toll, upending livelihoods, and damaging business and government balance sheets, the crisis could retard the region’s growth prospects in the years to come. No country will be spared.

The rapid spread of the virus, if left unchecked, is threatening to overwhelm weak healthcare systems. The number of confirmed cases of COVID-19 in sub-Saharan Africa is growing rapidly. As of April 9, more than 6,200 cases have been confirmed across 43 countries in the region, with South Africa, Cameroon, and Burkina Faso being the most affected.

As in the rest of the world, the health crisis has precipitated an economic crisis in the region reflecting three large shocks to economic activity:

• The strong containment and mitigation measures that countries have had to adopt to limit the spread of the COVID-19 outbreak will disrupt production and reduce demand sharply;

• Plummeting global economic growth together with tighter global financial conditions are having large spillovers to the region; and

• The sharp decline in commodity prices, especially oil, is set to compound these effects, by exacerbating challenges in some of the region’s largest resource-intensive economies.

As a result, the region’s economy is projected to contract by -1.6 percent this year—the worst reading on record, a downward revision of 5.2 percentage points from our October 2019 forecast. Across countries, the less diversified economies will be hit the hardest, reflecting the impact of lower commodity prices and containment efforts. Among the non-resource-intensive countries, those that depend on tourism are expected to witness a severe contraction because of extensive travel restrictions, while emerging market and frontier economies will face the consequences of large capital outflows and tightening financial conditions.

The large adverse shocks will exacerbate social conditions and aggravate existing economic vulnerabilities. The measures that countries have had to adopt to enforce social distancing are certain to imperil the livelihoods of innumerable vulnerable people. Given the limited social safety net available, people will suffer. Moreover, the pandemic is reaching the shores of the continent at a time when budgetary space to absorb such shocks is limited in most countries, thus complicating the appropriate policy response.

In this context, decisive measures are urgently needed to limit humanitarian and economic losses and protect the most vulnerable societies in the world:

• People first. The immediate priority is for countries to do whatever it takes to ramp up public health expenditures to contain the virus outbreak, regardless of fiscal space and debt positions.

• Fiscal policy. Sizable, timely and temporary fiscal support is crucial to protect the most affected people and firms, including those in the informal sector. Policies could include cash or in-kind transfers to help people under strain (including through digital technologies) and targeted and temporary support to hard-hit sectors. Once the crisis has subsided, countries should revert fiscal positions to paths that ensure debt sustainability.

• International solidarity. The ability of countries to mount the required fiscal response is highly contingent on ample external financing, on grant and concessional terms, being made available from the international financial community. This is all the more critical given the highly disrupted state of global capital markets. The absence of adequate external financing risks turning temporary liquidity issues into solvency problems, resulting in the effects of the COVID-19 crisis becoming long-lived.

• Monetary policy. A more supportive monetary stance and injection of liquidity can also play an important role in sustaining firms and jobs by supporting demand. Financial sector supervision should aim to maintain the balance between preserving financial stability and sustaining economic activity. For countries with floating regimes, exchange rate flexibility can help cushion the external shocks, while some drawdown of reserves to smooth disorderly adjustment may mitigate potential financial implications from foreign exchange mismatches. For countries facing sizable and disorderly capital outflows, temporary capital flow management measures could be considered as part of a wider policy package.

Economic forecasts at this juncture are subject to higher-than-usual degrees of uncertainty. Subject to the decisive actions laid out above, growth in the region is projected to recover in 2021 to about the 4 percent mark. However, the depth of the slowdown in 2020 and the speed of recovery will depend on several factors, including how the pandemic interacts with weak local health systems, the effectiveness of national containment efforts, and the strength of support from the international community.