The global economic crisis unleashed by the COVID-19 pandemic will lead most countries in Africa to an economic recession, fiscal deficits and larger public debt. Like the rest of the continent, macroeconomic forecasts for Lusophone African countries are now all “in the red” — with the exception of Mozambique.
In its Sub-Saharan Africa Regional Economic Outlook, the International Monetary Fund (IMF) incorporated the economic shock brought by COVID-19 and, more directly, what it calls the undergoing “Great Lockdown” to contain the pandemic. Angola, reliant on oil exports, is one of the most affected countries, with the IMF´s revised figures now pointing to an economic recession of 1.4% and an increase in public debt to 132.2% this year.
Growth in Angola, a major oil exporter to China, is expected by the IMF in 2021, at a rate of 2.6% of GDP, with public debt lowering to 124.3% of GDP.
According to the IMF, growth in oil-exporting countries will drop from 1.8% in 2019 to -2.8% this year, a downward revision of 5.3 percentage points compared to October’s forecasts. Nigeria, the largest crude exporter in the region, is expected to contract 3.4%.
Against a backdrop of even greater uncertainty than usual, the IMF anticipates that sub-Saharan Africa will experience negative growth of 1.6%, the highest on record and 5.2 percentage points below October’s forecasts. The continent should return to growth next year, seeing GDP expand, on average, 4.1%.
For the Fund, the forecast of recession for sub-Saharan Africa is explained by three major factors: the containment measures, which harm economic activity, the effects of the slowdown in the global economy, which is also in recession this year, and the strong fall in the price of raw materials, especially oil, which magnifies the challenges in some of the largest resource-dependent economies, namely Angola and Nigeria.
The crisis threatens to push the region out of its way, reversing the encouraging progress in recent years’ development, and could weaken the region’s growth prospects in the coming years, according to the IMF.
For Cape Verde, the IMF revised downwards by more than 9 points is GDP prediction for this year, from growth around 5% to a fall of 4%, with debt increasing to 132.5 % this year.
Countries dependent on tourism, such as Cape Verde, São Tomé and Príncipe or Seychelles, should experience a severe fall, with GDP contracting 5.1% after having grown, on average, 3.9% in 2019, says the Fund.
Cape Verde should, however, return to GDP growth next year, at a rate of around 5,5%.
São Tomé e Príncipe should be hit even harder this year, with a recession of 6% of GDP, the sharpest among lusophone countries. Debt should increase to 73.5% of GDP this year.
Guinea-Bissau´s economic output should drop around 1.5%, with debt increasing slightly to 70.9% of GDP.
Among lusophone countries, the exception is Mozambique, that the IMF expects will grow 2.2% this year, the same as last year, with debt-to-GDP ratio increasing from 110% in 2019 to 125.4%, the third-largest in the region, second only to Eritrea and Cape Verde.
Economic growth equal to last year and the increase in public debt are explained by the effects of the COVID-19 pandemic and the slowdown in the price of raw materials, says the IMF, which forecasts that in 2021 Mozambique will grow 4.7% and that debt will fall slightly to 124.9% of GDP, but still well above the region’s average of 57%.
But other forecasts for Mozambique are bleaker. According to the Economist Intelligence Unit (EIU), Mozambique’s economy will contract by 2.4% this year
The IMF document includes forecasts for just two years – 2020 and 2021 – while the EIU covers the period up to 2024, the year in which the Mozambican economy is expected to be growing at a rate of 9.0%.
This rate of 9.0% is essentially linked to the beginning of the exploration of natural gas reserves in the Rovuma basin, northern Mozambique, but the attacks carried out by radical Muslims as well as the COVID-19 pandemic led ExxonMobil to postpone its final investment decision for projects in the Area 4 block.
For 2021 the EIU´s forecast growth is of 2.0%, followed in subsequent years by rates of 6.5% in 2022 and 7.8% in 2023, in addition to 9.0% in 2024.
The balance of budget implementation projected by EIU analysts is negative in all the years analysed, and is particularly significant in 2020 and 2021, with values of -13.3% and -11.1%, respectively.
The EIU document, quoted by MacauHub, suggests tax revenue will be hard hit by the COVID-19 pandemic, due to the reduction of exports and lower tax revenue arising from the measures applied to prevent the spread of the new coronavirus, but points out that the situation is likely to improve by 2021, as economic activity resumes.
In addition, increased public spending throughout the year due to the growth of health care costs as well subsidies granted to companies, as part of measures to relieve the consequences of the pandemic must also be considered.
Also, as a result of COVID-19 there will be a drop in foreign reserves, with the EIU analysts anticipating that Mozambique will have only enough reserves to cover 4.4 months of imports of goods and services, excluding major projects.
“The reserves will tend to recover in the period from 2022 to 2024 to 5.4 months of imports due to improvements seen in the balance of current transactions,” it said.