COVID-19: Could Plunge Africa into $75bn Funding Hole -Goldman

• COVID-19: Could Plunge Africa into $75bn Funding Hole -Goldman

Goldman Sachs Group Inc had said the present global pandemic could plunge African continent into funding hole in 2020 given the continent lack of fiscal buffer.

The investment bank said the continent’s weak liquidity, even prior to coronavirus pandemic had rendered Africa more vulnerable to the impact of COVID-19.

“Possibly the most severe impact of the crisis will be on already stretched fiscal balances,” Dylan Smith and Andrew Matheny, London-based economists at the bank, said in a research note this week. “Budget deficits would likely rise from an average of around 3.5% to high single digits, even before any loosening to soften the economic effects of the corona-crisis.”

It estimated that African governments could need as much as $75 billion to cushion the effect of the virus on the continent. This was below the $100 billion estimated by African finance ministers.

The ministers, in their second virtual meeting, had stated that the continent needs that much to protect at least 30 million jobs across key sectors.

The bank said if the tax reduction adopted by African nations to ease the current economic burden is factored in, the continent could need even more financial support.

This was after the World Bank said the African economy could contract between 2.1 percent to 5.1 percent this year.

However, Goldman said Angola and Zambia could be the most hit on the continent due to Angola’s exposure to crude oil and Zambia’s huge debt obligations. The experts predicted that the two economies could contract by at least 9 percent this year, while South Africa and Nigeria’s economies were predicted to shrink by 6 percent and 4 percent, respectively.

Still, “the choice between staying current on commercial interest payments and freeing up all possible resources for the corona-crisis response is not an easy one,” said Smith and Matheny.

“Entering default may distract from the crisis response, and could leave a legacy of legal challenges,” they said. “The strategic advantage of staying current on interest payments seems to us to be strong for most countries.”