The financial situation in Angola and Mozambique limits capacity to respond to the economic crisis

The global economic crisis caused by the Covid-19 pandemic is expected to affect economic growth in Africa, with highly indebted countries, such as Angola and Mozambique, with a limited capacity to respond to stimulus, according to the UN Economic Commission for Africa (UNECA).

The UN Commission report said that growth in African countries will slow from an average of 3.2% to 1.8%, in a best case scenario, leaving about 27 million people in extreme poverty.

“While developed countries have injected billions of dollars in the health sector, the social security network and economic stimulus measures, Africa has a serious lack of budgetary room to react in the same way,” says the UNECA document.

Africa’s financial situation, added the UN Commission, is affected by “four critical challenges,” particularly high levels of debt in relation to Gross Domestic Product, high fiscal deficits, high borrowing costs and depreciation of many African currencies against the euro and the dollar.

More than 50% of African countries had budget deficits above 3.0% in 2019 and around 22 African countries presented debt ratios as a percentage of GDP above the African average of 61%, according to UNECA.

Among these countries are Mozambique, which recorded debt of 108.8% of GDP and a budget deficit of 6.1% last year, and Angola, whose debt reached 95% of GDP – despite a budget surplus of 0.7%.

Vera Songwe, UN Under-Secretary-General and executive secretary of UNECA, projected that US$100 billion is needed urgently to create budgetary room for manoeuvre for all countries, so they can “meet the immediate needs of the safety net for populations.”

“The economic costs of the pandemic have been more severe than the direct impact of Covid-19. Across the continent, all economies are suffering from the shock, as the physical distance necessary to manage the pandemic is stifling and drowning economic activity,” said Songwe at the launch of the report.

According to the document, small and medium-sized enterprises in Africa are particularly threatened, if there is no immediate support.

The price of oil, which represents 40% of exports from Africa, fell by half in value, and the main African exports also fell, including tourism and aviation.

Last week, in its Global Economic Outlook, the International Monetary Fund projected a recession in sub-Saharan Africa, of 1.6% in 2020, 5.2 percentage points below the forecast made in October.

All Portuguese-speaking African countries, with the exception of Mozambique, are expected to post an economic downturn, with Angola, dependent on oil exports, falling 1.4% and Cabo Verde by 4.0%, nine percentage points below the previous forecast.

São Tomé and Príncipe is expected to see a recession of 6.0% of GDP, the most marked among the countries with Portuguese as an official language and the economy of Guinea-Bissau is expected to contract by around 1.5%.

Mozambique is expected to grow by 2.2% this year, the same as last year, according to the IMF, but this forecast is not shared by the Economist Intelligence Unit (EIU), which estimates that Mozambique’s economy will post a decline of 2.4% this year. (macauhub)