Africa needs fresh $7.1trn to recover from pandemic – ECA

With its current population of 1.37 billion Africa will need a socio-economic stimulus worth $7.1 trillion to recover from the ravages of the COVID-19 pandemic, Antonio Pedro, deputy executive secretary, Economic Commission for Africa (ECA) said on Thursday.

A one-month complete lockdown across Africa would cost the continent about 2.5 percent of its annual GDP, or about $65.7 billion per month, according to ECA’s estimate.

Pedro said the New Deal would have to deliver $7.1 trillion in financing to equate the US New Deal on a per capita basis, adding that the Roosevelt’s New Deal cost $41.7bn at the time it was instituted.

This translates to $653 billion in current US dollars; roughly equal to the total new issuance of SDRs of $650bn.

New Deal, is a domestic programme of the administration of U.S. President Franklin D. Roosevelt (FDR) between 1933 and 1939, which took action to bring about immediate economic relief as well as reforms in industry, agriculture, finance, water, power, labour, and housing, vastly increasing the scope of the federal government’s activities.

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Speaking at the 16th edition of the African Economic Conference, held in hybrid form in Sal, Cape Verde, he said the financing needs to achieve the Sustainable Development Goals (SDGs) estimated at $2.5 trillion for developing countries, was substantial even before the COVID-19 pandemic. The pandemic has exacerbated the financing challenges.

According to the 2021 OECD Global Outlook, the annual SDG financing gap in developing countries is estimated to have increased by $1.7 trillion, or roughly 70 percent in 2020.

Meanwhile, foreign direct investments fell from 4.46 percent of GDP in 2015 to 3.54 percent of GDP in 2019, with a potential decline in 2021 due to the pandemic.

“We must do more to leverage private financing especially as the fiscal buffers of developing countries come under extreme pressure,” Pedro, who delivered a remark on behalf of Vera Songwe, executive secretary, ECA said.

Increased expenditures coupled with declining revenues have worsened Africa’s fiscal deficits which deteriorated from -4.2 percent of GDP in 2019 to -7.6 percent of GDP in 2020.

Following a contraction of 3.2 percent in 2020, real GDP is projected to rebound to 3.6 percent in 2021 and 3.8 percent in 2022 (ECA, 2021).

However, these rates of growth are only slightly higher than Africa’s annual population growth of 2.3 percent. “And, we cannot assume that the positive growth rates will be sustained”, he said.

Of particular concern is that many developing countries are unable to meet the essential health and humanitarian needs of their people and to recover from the socio-economic crisis, owing to growing fiscal constraints and rising debt servicing obligations.

As of June 2021, over 22 of the 54 African countries were either in or at high risk of debt distress and many developing countries faced currency depreciation.

In addition, inflationary pressures are on the rise threatening to erode the purchasing power of households already reeling from the pandemic.

Policymakers are now faced with the daunting task of ensuring sustained socio-economic recovery while mobilizing resources to finance rising fiscal deficits and debt obligations.

At the same time, countries are tasked to meet their commitments to the 2030 Agenda and Agenda 2063 as well as tackle the emerging climate emergency.

Pedro was concerned that only 5 percent of the unprecedented allocation of $650 billion in Special Drawing Rights (SDR) went to Africa the region.

According to him, the global financial architecture has not been effective in addressing the underlying asymmetries in policy responses. Development finance mechanisms such as the IMF’s SDR allocations, for instance, are linked to the size of an economy and not to the relative size or impact of the shock on an economy.

“Without scaled-up financing for productive investments in Africa and developing countries, the divergent recovery paths reinforced by the pandemic will continue to widen, exacerbating inequalities and undermining already weakened progress towards achievement of the SDGs,” Pedro said.