The outbreak of the coronavirus pandemic will affect global trade and deal a blow on fragile economies like Zimbabwe that rely on primary exports of goods such as gold and tobacco, the International Monetary Fund (IMF) has warned.
The southern African nation is currently undergoing a 21-day national lockdown to slow down the spread of the respiratory ailment. In a Sub-Saharan Africa Regional Economic outlook report, IMF said Sub-Saharan Africa is 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.
“Zimbabwe’s gross domestic product outlook is expected to be -7.4% in 2020 after Covid-19 impounded on the continent that has been battered by multiple weather-related shocks, including cyclones, droughts in southern and eastern Africa (especially in Mozambique, Zambia, and Zimbabwe),” IMF said.
“On trade, 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.”
Gold and tobacco are Zimbabwe’s two largest foreign currency earners contributing about 60% of the export receipts. The IMF said the sharp tightening of global financial conditions reduce 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 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,” IMF said.
IMF said for the countries like Zimbabwe 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.
Remittance flows may also decrease as global growth slows, reducing disposable income and adding to external pressures. IMF said international financial institutions and the G20 needs to play a key role in easing financing constraints and helping countries smoothen the shock and the IMF is making $100 billion available through rapid-disbursing emergency facilities.
The IMF’s Catastrophe Containment and Relief Trust will provide grants to the poorest countries to pay off debts to the Fund. This week, the IMF executive board has approved an immediate debt service relief to 25 member countries as part of measures to alleviate the devastating economic impact of the virus.
This will further cripple a struggling economy. As a result, the region’s economy is projected to contract by 1.6% this year—the worst-reading on record.
IMF expects the economic crisis to exacerbate social conditions and aggravate existing economic vulnerabilities, while containment measures and social distancing will inevitably jeopardise the livelihoods of countless people.
The Covid-19 pandemic threatens to exact a heavy human toll, and the economic crisis it has triggered can upend recent development progress. Fiscal, monetary, and financial policies should be used to protect vulnerable groups, mitigate economic losses, and support recovery.
The number of confirmed cases of Covid-19 in sub-Saharan Africa is growing rapidly and as of April 9, more than 6,200 cases have been confirmed across 43 countries in the region, with South Africa, Cameroon, and Burkina Faso being the most affected.