Nigeria and other sub-Saharan African (SSA) countries are facing an unprecedented health and economic crisis that threatens to throw the region off its stride, reversing the development progress of recent years and slow the region’s growth prospects in the years to come, the International Monetary Fund (IMF) has said.
According to the IMF, the health crisis has precipitated an economic crisis reflecting three large shocks: disruption of production and a sharp reduction in demand; spillovers from a sharp deterioration in global growth and tighter financial conditions; and a severe decline in commodity prices.
On trade, the IMF said a sharp growth slowdown among key trading partners reduces external demand, while disruptions of supply chains lower the availability of imported goods, potentially adding inflation pressure.
Already, the Lagos Chamber of Commerce and Industry (LCCI), had expressed worry that supply chains, especially for the manufacturing sector, have been disrupted by the pandemic.
“In addition, the sharp tightening of global financial conditions reduces investment flows to the region and hampers its ability to finance spending needs to deal with the health crisis and support growth.
“This may result in either a cut in government spending, a build-up in arrears, or an increase in government borrowing in local markets, with attendant consequences on domestic credit and growth.
“For frontier economies, the sudden stop and capital outflows are exerting exchange rate pressures and can result in a large current account adjustment through domestic demand compression and further balance sheets pressures in countries with large foreign exchange mismatches”, it added.
The IMF expressed worries that 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”, it added.
The IMF in its report on the SSA region, noted that the region’s economy is projected to contract by 1.6 per cent this year—the worst-reading on record, adding that the economic crisis will exacerbate social conditions and aggravate existing economic vulnerabilities, while containment measures and social distancing will inevitably jeopardize the livelihoods of countless people.
It stated that the large adverse shocks would exacerbate social conditions and aggravate existing economic vulnerabilities. “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.
“Decisive measures and support from the international community are urgently needed to limit the humanitarian and economic losses and protect the most vulnerable societies”, it added.
“Measured in real terms (adjusted for inflation), oil prices have not been this low since 2001,” the IMF said in its regional economic outlook report for the Middle East and Central Asia. “Oil prices at these levels could result in more than $230 billion in lost annual revenue across MENAP [Middle East, North Africa, Afghanistan and Pakistan] oil exporters, compared with October projections, placing significant strains on fiscal and external balances.”
Oil prices are down some 60% since the beginning of the year as the coronavirus pandemic decimated oil demand. OPEC and allies agreed over the weekend to curb crude output starting in May. The pact will see the coalition trimming production by a historic 9.7 million b/d in May and June and gradually reducing the cuts through April 2022.
“The subsequent production cut agreement by OPEC+ at the start of April, complemented by further production cuts by oil exporting G20 economies, could provide some support to oil prices, particularly if global demand increases,” the IMF said in the report.
