Real GDP in Africa is projected to contract by 1.7 percent 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.
If it continues beyond the first half of 2020, there would be a deeper GDP contraction in 2020 of 3.4 percent, down by 7.3 percentage points from the growth projected before the outbreak of COVID–19.
The most affected economies are those with poor healthcare systems, those that rely heav-ily on tourism, international trade, and commodity exports, and those with high debt burdens and high dependence on volatile international financial flows.
COVID–19 heightens the likelihood of a widespread and far-reaching sovereign debt crisis if debt is not properly managed.
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.
Remittances took the lead in external financ-ing, up by 7 percent from 2017, to $82.8 billion in 2018, and increasing further to $86.2 billion in 2019 on the back of a pickup in global economic growth and rising migration.
This has become a vital source of foreign financing for many African economies, accounting for more than 10 percent of GDP of Cabo Verde, Comoros, Gambia, Leso-tho, Liberia, and Senegal.
In turn, these countries have become exceptionally vulnerable to shocks to remittances caused by COVID–19
Foreign direct investment— which picked up in 2018 by 10.9 percent, reaching $45.9 billion, and improved further to an estimated $49 billion in 2019— is also expected to fall in 2020 as investors reduce or postpone their investments amid uncer-tainties.
Official development assistance, which has risen since 2016 (by 1.2 percent in 2018), could be constrained by the impact of the crisis on advanced economies.
And portfolio flows, which have declined since 2017, standing at $27.1 billion in 2019 for Africa, are experiencing severe pressures as emerging market capital flows suddenly stop, with forecasts predicting a fall of more than 50 percent in 2020, driven by the COVID–19 shock to global growth and a more risk-averse sentiment among investors
About 773.4 million Africans were employed in 2019, projected under the pre-COVID–19 assumptions to grow to 792.7 million in 2020.
Under the baseline scenario of a 1.7 percent GDP contraction, employment is projected to decline by 24.6 million jobs in 2020.
Under the worst-case scenario of a 3.4 percent GDP con-traction, up to 30 million jobs could be lost.
The recovery is likely to be volatile and uneven, requiring governments to follow a carefully planned and sequenced adaptive strategy that allows for continual adjustment, as new informa-tion becomes available and events unfold.
Fiscal deficits are projected to double, and debt levels to increase by an additional 10 per-centage points of GDP
To reopen economies, policymakers need to follow a phased and incremental approach that carefully evaluates the tradeoffs between restarting economic activity too quickly and safe-guarding the health of the population