African countries, Zimbabwe included, will need to consider adopting various possible economic interventions to minimise the negative impact of Covid-19 and stimulate domestic growth post the global pandemic, the African Union (AU) has said.
Covid-19, believed to have first broke out in the Chinese city of Wuhan before spreading globally, killing tens of thousands and infecting hundreds of thousands others, has been declared a global health emergency by the World Health Organisation (WHO).
But beyond its health implications, the deadly viral disease has turned global economies on their head, drove markets into turmoil while disrupting global supply and value chains in what is feared will cause a global economic down spiral never seen since the turn of the millennium.
Zimbabwe is among several African countries that have already announced preliminary monetary and fiscal interventions in the wake of Covid-19, but it remains to be seen whether these are effective to minimise the impact of the pandemic and jumpstart growth.
The Southern African country was anticipating growth of about 3 percent this year, after drought and cyclones sunk it to 6,5 contraction last year, but may likely suffer similar growth challenges as forecast in most parts of the world.
“The coronavirus disease has become a severe pandemic and poses many serious challenges at national, regional and global levels.
“The consequences, even if they are difficult to calculate, are expected to be enormous in view of the rapid spread of the Covid-19 and the drastic measures taken by countries whatever their size worldwide,” AU said.
The AU said potential interventions included borrowing for emergency funds at the international market to support spending as the commercial interest rate is currently low, as countries may experience fiscal deficits as a result of the drop in tax revenue and need for high of spending.
This comes as African finance ministers announced that the continent needs US$100 billion to defend healthcare systems and counter the economic shock caused by the disease.
The African Development Bank (AfDB) has since raised an exceptional US$3 billion in a three-year bond to help alleviate the economic and social impact the Covid-19 pandemic will have on livelihoods and Africa’s economies.
The Fight Covid-19 Social bond, with a three-year maturity, garnered interest from central banks and official institutions, bank treasuries and asset managers including socially responsible investors, with bids exceeding $4,6 billion.
The AU believes there will be inevitable need for economic and financial measures to support enterprises, big, small and medium as well as individuals, as a response to temporary jobs cut to safeguard economic activities, such as guarantees to private sector debt. As such, AU has advised Governments to request their Central Banks to lower interest rates to increase loans to businesses (and decrease their cost) and provide commercial banks with more liquidity to support business activities.
Where necessary, Central Banks should consider revising certain targets (inflation inferior to 3 percent) on a temporary basis and due to the emergency situation. AU also said the Apex banks need to waive immediately all interest payments on trade credits, corporate bonds, lease payments and activation of liquidity lines to ensure countries and businesses can continue the purchase of essential commodities without weakening the banking sector.
Further, AU contends Governments must “initiate fiscal stimulus packages to minimise the impact of the coronavirus pandemic on the national economies”.
Similarly, the continental body wants to see African leaders prepare fiscal stimulus to taxpayers impacted by Covid-19 and consider tax suspension, waive tax payments in critical sectors and local sourcing by the public sector in its response to support SMEs and other businesses.
Renegotiating external debt payment plans and conditions, AU said, is critical to ensure smooth servicing of the debt, including suspension of interest rates payments, which are estimated at US$44 billion for 2020, as well as possible extensions of plan duration.
The socio-economic impact of the Covid-19 crisis is real, the AU said, and is expected to go deeper and longer than currently estimated or can be projected at this point.
