COVID-19: 38.7m Africans Will Fall Into Poverty, Says AfDB

*Predicts 3.4% GDP growth in 2021

As countries and continents continue to feel the impact of COVID–19, the Africa Development Bank (AfDB) has predicted that 38.7 million more Africans will slide into extreme poverty in 2021.

The AfDB made this projection in its African Economic Outlook 2021 report released yesterday.

The report warned that the “COVID-19 effects could reverse hard-won gains in poverty reduction over the past two decades”.

According to the AfDB, “revised estimates show that up to 38.7 million more Africans could slide into extreme poverty in 2020–21, pushing up the total to 465.3 million people, or 34.4 percent of the African population, in 2021”.

It will cost between $7.8 billion in 2020 and $4.5 billion in 2021 to bring the income of those affected by the pandemic and forced to poverty up to at least the poverty line.

AfDB projected that “inequality is likely to increase, and school closures could have long-lasting consequences for human capital accumulation and productivity growth”.

The COVID–19 pandemic, the continental bank said, “has caused a surge in public financing needs as governments spend more to mitigate the socioeconomic consequences of the pandemic”.

African governments, the bank added, “will require additional gross financing of about $125 to $154 billion in 2020 to respond to the crisis”.

Policy initiatives required to accelerate Africa’s transformation to a more resilient, inclusive, and sustainable post pandemic recovery, the AfDB noted, will include: continuing support for the health sector to consolidate gains in the fight against the pandemic; effectively using monetary and fiscal support to underpin the economic recovery where policy space remains available.

Others include, expanding social safety nets and making growth more equitable to address increasing poverty; scaling up active labour market policies to retool the workforce for the future of work; intensifying structural transformation through digitalisation and economic diversification to build resilience and fostering regional and multinational cooperation to ensure sustained and widespread recovery.

In the short term, the average debt-to-GDP ratio in Africa is expected to increase significantly to over 70 percent, from 60 percent in 2019.

Most countries in Africa are expected to experience significant increases in their debt-to-GDP ratios for 2020 and 2021, especially resource-intensive economies.

The continent’s debt dynamics the AfDB stated “have been driven mainly by cumulative depreciation in exchange rates, growing interest expenses, and high primary deficits”.

However, strong growth recorded over the years has helped to dampen the rate of growth of the debt-to-GDP ratio.

Other major drivers of debt dynamics are high inflation, weak governance, security spending, and weaknesses in revenue mobilisation.

It added that Africa’s macroeconomic fundamentals have been weakened by the pandemic. Fiscal deficits are estimated to have doubled in 2020 to a historical high of 8.4 percent of GDP.

Debt burdens are likely to rise by 10 to 15 percentage points in the short to medium term. Exchange rate fluctuations have been elevated, and inflation has inched up, with external financial inflows heavily disrupted.