UN Predicts Economic Recession In Africa
The United Nations has predicted a recession in Africa’s economy due to the domestic spread of the coronavirus, if multilateral lenders and investors do not help the continent waive debt-servicing costs.
Some African finance chiefs on behalf of the ministers, in a letter sent by the United Nations Economic Commission for Africa, asked the European Central Bank, the International Monetary Fund and World Bank to join stimulus discussions.
African finance ministers in a meeting agreed that the continent needs a stimulus package of about $100 billion including $44 billion in debt-servicing waivers to combat COVID-19.
UNECA’s head of macroeconomics and governance division, Bartholomew Armah, stated that the probability of the recession happening is high because the number of cases in Africa has increased over time.
“There is a big likelihood of a recession. Our previous forecast should be seen as conservative because it was done at a time when the actual number of cases in Africa was low.”
UNECA which facilitated the meeting of Africa’s finance ministers, has considered reviewing the region’s growth estimate for this year, which was already reduced to 1.8% from 3.2% earlier this month.
Mr. Armah also stated that African economies have been burdened with high debt loads after years of low global yields they need fiscal space immediately to expand their health-care systems and build a social-protection system.
“While debt forgiveness is an option, I think we should pursue more immediate options and use that as a last resort,” he said. “It is more than a moral argument. It is a strategic argument.”
Though Africa has recorded some of the fastest growth rates as a growing consumer market over the past decade, the continent remains home to two-thirds of the world’s poor.
Following the outbreak, capital flight and commodities are whirling and governments like South Africa, Ghana and Egypt are closing borders, shutting schools and banning crowds as the number of cases has climbed to almost 2,000.
The IMF’s chief economist, Gita Gopinath, in an interview with Bloomberg Television noted that the global lender has funds to provide some debt relief for low-income countries. Nearly 80 governments have requested support from the IMF to battle the virus.
In 2005, multilateral lenders and rich nations wrote off billions of dollars owed by African nations. External debt payments now consume 13% on average of government revenue on the continent, according to U.K.-based Jubilee Debt Campaign.
How will a debt-service waiver help Africa?
A debt-service waiver in simple terms is a request made by a debtor to a lender asking for a reduction in the interest rate on a loan.
As a result of the coronavirus, most economies are suffering and Africa is no exception. Asking for a waiver at this point is good because Africa’s economy has been greatly affected hence inflow is not as expected so each country cannot pay up to the percentage required on their debt.