Covid-19 could undo Africa's recent progress, says IMF Africa chief - World -

The director of the International Monetary Fund’s African department talks about the organisation's response to Covid-19 and the outlook for Africa.

Abebe Aemro Selassie

Abebe Aemro Selassie

Q: How is the spread of coronavirus likely to impact African economies? 

A: Africa is facing an unprecedented health and economic crisis, which threatens to reverse much of the region’s progress over recent decades, and which may also weigh on growth prospects for years to come. Moreover, the pandemic is reaching the shores of the continent at a time when budgetary space is already limited in many countries, complicating the policy response and urgently boosting the need for external assistance.

The IMF is working closely with our partners – the World Bank, World Health Organisation, African Development Bank and African Union – to respond to this crisis swiftly and effectively.

Q: What are the largest threats to regional economies, and what will be the impact on the continent’s economic growth?

A: We project that the region’s economy will contract by at least 1.6% this year – the worst since at least 1970. This reflects multiple shocks that will weigh heavily on economic activity.

First, the strong containment and mitigation measures that countries have had to adopt to limit the spread of the virus will disrupt production and sharply reduce demand. Second, plummeting global economic growth and tighter global financial conditions will have large spillovers in the region. Third, the sharp decline in commodity prices, especially oil, is set to compound these effects, exacerbating challenges in some of the region’s largest resource-intensive economies, including Nigeria.

Q: What are the main tools at the IMF’s disposal to help the continent’s response to the crisis?

A: As stressed recently by the IMF’s managing director [Kristalina Georgieva], this is a crisis like no other. And in many ways, this challenge has been met with a ‘response like no other’ from the IMF’s membership. In just the past few months, the fund has significantly strengthened its ability to help those countries in greatest need. The IMF’s emergency, rapid-disbursing capacity has been doubled to meet expected demand of about $100bn.

We have also reformed our Catastrophe Containment and Relief Trust (CCRT), to help our poorest and most vulnerable members through rapid debt-service relief, and we are working with donors to increase our debt-relief resources by $1.4bn. In sub-Saharan Africa, 22 countries are eligible for IMF debt relief via the existing CCRT framework, totalling $205m for the first six months.

Finally, we have also established the new short-term liquidity line, the first addition to the IMF’s financing toolkit in almost 10 years. This new facility provides a reliable and renewable credit line, which can help countries strengthen economic stability and confidence.

Q: Could you explain how you are using extended credit facilities to help African countries at this time? Is the IMF deploying its Rapid Credit Facility (RCF)?

A: As of May 12, close to 40 countries in sub-Saharan Africa have requested emergency financial assistance from the IMF, of which 25 requests have already been approved. However, given the urgency associated with our members’ crisis-related needs, most of these requests have been for disbursements under the fund’s RCF or rapid financing instrument (RFI). Both of these facilities provide rapid financial assistance to member countries without the need to have a full-fledged programme in place. To date, 20 sub-Saharan African countries have received disbursements under the RCF amounting to $4.6bn, while seven countries have made purchases under the RFI amounting to $4.9bn.

Q: Is the IMF concerned about moral hazards stemming from debt relief?

A: The issue of moral hazard is more valid when countries’ debt difficulties are policy induced. But in the case of the vast majority of countries, the debt pressures they now face are on account of the exceptional nature of the Covid-19 shock. This is a once-in-100-years event – an exceptional health and economic shock.

The response has to be equally exceptional, including debt relief from all those creditors that can provide this relief. And it is why the IMF, jointly with World Bank, called on official bilateral creditors to suspend debt service. If the private sector were to contribute to the effort, it would be more beneficial still to free up critical resources for health and social protection spending.

Q: To what extent should private sector creditors offer debt relief?

A: It is imperative at this moment to provide a global sense of relief for developing countries, as well as a strong signal to financial markets. The international community’s support for countries in Africa will be critical in ensuring that the human toll and dislocation from this crisis will be limited and short lived. Private sector participation is, of course, voluntary. We are encouraged by the signals coming out of entities such as the Institute of International Finance, whose membership covers over 450 global firms across the financial services industry.

Abebe Aemro Selassie is director of the African department at the International Monetary Fund.

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