Considering the current corona crisis, the African Development Bank (AfDB) has decided to take action by taking several important steps. The latest initiative to date is the creation of a $10 billion fund to help African countries fight the coronavirus pandemic.
An “exceptional mobilization,” most African capitals commented the day after the announcement. In detail, the “fund is endowed with $5.5 billion for sovereign operations in Bank member countries and $3.1 billion for sovereign and regional operations through the African Development Fund countries […] An additional $1.35 billion will be devoted to private sector operations,” according to the Bank’s official announcement, whose headquarters are in Abidjan. Both governments and private sector actors will be able to make use of these funds.
Find out how AfDB is planning to help African countries cope with the pandemic. The Born2Invest mobile app brings you the most important economic news from Africa.
A financial windfall that takes budgetary problems into account
This envelope has the particularity of taking into account the budgetary difficulties currently faced by many countries on the continent. Forced to make budgetary readjustments, some have already requested international assistance.
Nigerien President Mahamadou Issoufou has called for a “Marshall Plan” for Africa, while Ethiopian Prime Minister Abiy Ahmed called on the G20 in March to provide debt relief for the most vulnerable economies and to prepare a $150 billion emergency financial assistance plan.
Many African countries derive their export earnings from commodities
The collapse of oil prices has plunged African economies into distress. According to the AfDB’s African Economic Outlook 2020, these economies are simply unable to meet their budget commitments which were based on oil prices prior to the coronavirus outbreak. “Africa faces huge fiscal challenges to effectively respond to the coronavirus pandemic. The AfDB is deploying all its emergency response capacities to help Africa at this critical time. We need to protect lives. This fund will help African countries in their efforts to contain the rapid spread of COVID-19,” the AfDB President, Akinwumi Adesina, said.
Africa might be heading towards a recession
According to several studies (Finactu, African Union) published in recent weeks, including the latest report of the African Development Bank, COVID-19 could lead to a decline in GDP, ranging from $22.1 billion to $88.3 billion according to the worst-case scenario, a contraction of GDP forecasts for 2020 of 0.7 to 2.8 points. If the current situation persists, Africa could even fall into recession this year.
As it stands, the COVID-19 shock will further reduce the continent’s fiscal space, as budget deficits are projected to widen by 3.5% to 4.9% and increase Africa’s financing gap by an additional $110 to $154 billion in 2020. Bank estimates indicate that Africa’s total public debt could increase from $1.86 trillion at the end of 2019 to over $2 trillion in 2020, compared to a projection of $1.9 trillion in a non-pandemic scenario. According to a report prepared by the Bank in March 2020, in the worst-case scenario, these figures are expected to reach $2.1 trillion in 2020.
Two weeks ago, the Bank issued a social bond, “Fighting COVID-19,” for a record $3 billion, the largest U.S. dollar-denominated social bond issued in the international capital market the statement said. “We are living in an exceptional time, when we must take bold and decisive action to save and protect millions of Africans. We are in a race to save lives and no country will be left behind,” Adesina said. Also last week, the African Development Bank’s board of directors approved $2 million in emergency assistance to the World Health Organization (WHO) to strengthen its capacity to help African countries control and mitigate the effects of the COVID-19 pandemic.
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First published in LePoint Afrique, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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