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Goldman says virus may create $75bn funding hole in Africa

Fallout from a combination of lockdowns to contain the spread of the virus and lower revenues from exports and tourism to hit the continent hard.
Mamelodi on the 8th day of SA's National Lockdown, Pretoria. South Africa. Image: Siyabulela Duda

The funding needs of governments in sub-Saharan Africa could rise by $75 billion as the coronavirus pandemic hammers their economies, according to Goldman Sachs Group.

“Possibly the most severe impact of the crisis will be on already stretched fiscal balances,” Dylan Smith and Andrew Matheny, the bank’s economists in London, said in a 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.”

If measures such as tax cuts that some governments, including Kenya’s, have already announced are included, the funding gap might end up being higher, they said.

A combination of lockdowns to contain the spread of the virus and lower revenues from exports and tourism will be severe enough to trigger the region’s first full-year recession since 1991, according to Goldman.

Angola and Zambia may be among the hardest-hit countries, with their economies shrinking by as much as 9% in 2020, the bank estimates. South Africa’s output will probably decrease by 6% and Nigeria’s by 4%, while Ghana, Mozambique and Senegal will also contract if the shutdowns end up being “heavy,” according to the analysis.

The fiscal shortfall could squeeze the ability of some governments to continue servicing their debts. Zambia has already asked international banks for proposals on re-profiling its liabilities, while many others have Eurobonds trading at what are considered distressed levels.

One saving grace, according to Goldman, is that few African sovereigns have many foreign bonds maturing this year.

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. The strategic advantage of staying current on interest payments seems to us to be strong for most countries.”

Any debt relief is most likely to come on bilateral and multilateral loans, they said.

© 2020 Bloomberg

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What “funding hole” are you referring to? Haven’t you read, Africa is the black hole for anything given to this continent in an effort to save it from itself. For instance, it is well-known that US food aid gets sold/ distributed only to those who keep the current regime in power. The regime that is the root cause for the need of aid in the first place.

Africa determines the level of food security in developed nations. The USA and Europe need a market for their surplus agricultural production that results from the support from taxpayers to farmers. The surpluses have to go somewhere otherwise it would crush commodity prices in the producing country. Funding from the IMF, or governments, comes with prerequisites, some of which are the prescribed buying of food from certain suppliers. Food aid and cheap imports also decimate the profit margins of local African farmers, thereby ensuring a perpetual dumpsite for surplus production from subsidised farmers in developed nations.

The USA and Europe export their food-insecurity to Africa and import food security from Africa, and the socialist African states are happy to participate in that trade.

Africans haven’t learned that if you don’t have a plan, then you are always part of someone else’s plan.

End of comments.

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