Economy & Politics
COVID-19: IMF Chief predicts $345 billion financing gap in African countries
IMF boss predicts that African countries will experience a financing gap to the tune of $345 billion through 2023.
International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, has predicted that African countries will experience a financing gap to the tune of $345 billion through 2023. According to her, this finance gap is largely attributable to the economic impact of the pandemic on vulnerable African economies.
In a concerted effort to avert this threat, Kristalina called on developed countries and institutions to assist African states in weathering the global pandemic and its associated economic impact. She made the call in a conference on Friday. Driving home her point, Kristalina said, “The pandemic will not be over anywhere until it is over everywhere … All of us, countries and institutions, must do more to support Africa to cope with the next phase of this crisis.”
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She further asserted that African states had spent an additional 2.5% of gross domestic product on average to help their populations, and institutions like the IMF had also stepped up, but more aid was needed. Private lending also remained subdued, she added.
Commenting on how she arrived at the projected figure, Kristalina said, “Despite sizeable domestic adjustments, African states still need $1.2 trillion in financing through 2023, implying that some heavily indebted countries were being forced to choose between debt service and additional health and social spending.”
READ: IMF expects Nigeria’s GDP to shrink by 5.4% in 2020
She further said, “Current commitments from international lenders and official bilateral creditors would cover less than a quarter of the projected needs, and private lending remained limited, leaving the projected $345 billion funding gap.“
Why this matters
According to World Bank estimates, the pandemic, in addition to a collapse in commodity prices and a plague of locusts, has adversely affected African economies, putting additional 43 million people at risk of extreme poverty. African countries have reported more than 1 million coronavirus cases and some 23,000 deaths.
READ: IMF assessing additional tools to provide aid to pandemic-hit countries
In view of the details implying a potential threat to African economies and the world at large, IMF needs to seize the opportunity to call on members to make new pledges, so that the Fund can increase its concessional lending capacity, and loan its Special Drawing Rights —the IMF’s currency—to poorer countries.
It also backs an extension of the Group of 20’s moratorium in official bilateral debt payments beyond the end of 2020, and supports steps to strengthen the architecture for debt restructuring.
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IMF lifts 2021 global GDP growth to 6%
The group also warned that economic recoveries are diverging dangerously across and within countries.
The International Monetary Fund has lifted its global growth outlook to 6% in 2021 (0.5% point upgrade) and 4.4% in 2022 (0.2 percentage point upgrade), after an estimated historic contraction of -3.3% in 2020 due to the effects of the COVID-19 pandemic. This disclosure was made on the organisation’s website on Tuesday.
The group also warned that economic recoveries are diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliance on tourism do less well.
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What the IMF is saying
“The upgrades in global growth for 2021 and 2022 are mainly due to upgrades for advanced economies, particularly to a sizeable upgrade for the United States (1.3 percentage points) that is expected to grow at 6.4 percent this year.
This makes the United States the only large economy projected to surpass the level of GDP it was forecast to have in 2022 in the absence of this pandemic.
China is projected to grow this year at 8.4 percent. While China’s economy had already returned to pre-pandemic GDP in 2020, many other countries are not expected to do so until 2023.”
READ: Nigeria needs structural and monetary policy reforms to unlock potential – IMF
On divergent recoveries
The IMF stated that divergent recovery paths are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations.
“The average annual loss in per capita GDP over 2020–24, relative to pre-pandemic forecasts, is projected to be 5.7 percent in low-income countries and 4.7 percent in emerging markets, while in advanced economies the losses are expected to be smaller at 2.3 percent,” they said.
“Faster progress with vaccinations can uplift the forecast, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade. Multispeed recoveries could pose financial risks if interest rates in the United States rise further in unexpected ways.“
For Africa, IMF forecasts economic growth of 3.4% in 2021 and 4% by 2022, Nigeria is expected to grow by 2.5% in 2021 and 2.3% by 2022, while South Africa is projected to hit growths of 3.1% and 2.0% for the respective years in focus.
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In case you missed it
The International Monetary Fund (IMF) identified some factors that hamper the economic recovery of low-income countries from the devastating impact of the coronavirus pandemic, factors including access to vaccines, limited policy space to respond to the crisis, the lack of means for extra spending, pre-existing vulnerabilities such as high levels of public debt in many low-income countries and sometimes weak, negative, total factor productivity performance in some low-income countries. These factors continue to act as a drag on growth.
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