24/04/2020
Several African countries are among those whose economies are receiving financing backing from the International Monetary Fund during the pandemic, with more expected to join.
The International Monetary Fund has provided disbursements to several African nations, as they seek to reduce the economic and financial impact of the Covid-19 pandemic.
Morocco, Tunisia, Madagascar, Rwanda, Guinea, Gabon and Senegal are all among the countries receiving assistance, while Ghana is receiving the largest sum.
Others are expected to follow, with Nigeria and Chad both making applications for help.
MEETING NEEDS
Ghana is receiving USD 1 billion from the IMF’s rapid credit facility, to help the country tackle a slowing economy, tightening financial conditions and exchange rate pressures caused by coronavirus.
In a statement, IMF deputy managing director and acting chair, Tao Zhang was positive about the Ghanaian government’s response to the crisis and the work already done by the Central Bank, but said:
“The budget deficit is projected to widen this year given expected lower government revenues and higher spending needs related to the pandemic. The fund’s emergency financial assistance under the rapid credit facility will help address the country’s urgent financing needs, improve confidence, and catalyse support from other international partners.”
Morocco has drawn on USD 3 billion available under a precautionary and liquidity line arrangement, to manage the pandemic’s social and economic risks, and ease payment pressures, while fellow North African country Tunisia has received USD 745 million to cover fiscal and payment balance needs, with Mitsuhiro Furusawa, IMF deputy managing director and chair, saying: “The authorities have also taken steps to limit fiscal pressures, including a mechanism for automatic fuel price adjustment, emergency savings in the civil service wage bill, and a rescheduling of lower-priority public investment.”
He continued that the support “will provide most of the financing to implement the fiscal crisis-response measures and ensure an adequate level of international reserves”.
Further south, Madagascar has received approval for a USD 165.99 million disbursement to help it tackle payment needs against a backdrop of severe disruption to the country’s tourism, mining, manufacturing, trade and investment sectors, which Furusawa said will cause GDP “to decline sharply”.
He continued: “The fiscal situation is also deteriorating rapidly with additional health and social spending outlays and a significant shortfall in tax revenue. Fund support under the rapid credit facility will help the authorities meet the urgent fiscal and external financing needs to mitigate the impact of the pandemic.”
Similar backing has gone to Rwanda, following the IMF executive board’s approval of a USD 109.4 million disbursement to help it tackle its fiscal and external financing needs, aiding with international reserves and increased spending to contain Covid-19.
Zhang explained: “The Covid-19 pandemic has ground Rwanda’s economy to a halt, creating an urgent balance of payments need.”
He went on: “The IMF emergency support under the rapid credit facility will help with Covid-19-related pressures on trade, tourism and foreign exchange reserves, and will provide much-needed resources for health expenditure and for households and firms affected by the crisis. It should also help to catalyse donor support.”
“A temporary widening of the budget deficit is appropriate to mitigate the health and economic impact of the pandemic. Spending should be well-targeted and cost-effective to not crowd-out other priority areas. Once the crisis abates, the fiscal adjustment path should be adjusted to preserve debt sustainability in the medium-term. Contingency plans should be prepared given the uncertain outlook,” he added.
Guinea is another to receive IMF assistance, in the form of USD 23.5 million for coronavirus-related risks, following a good performance under a previous IMF programme of support.
Furusawa said: “Beyond immediate needs created by the Covid-19 crisis, creating fiscal space for priority spending will be pivotal to foster broad-based growth in the years to come. Achieving a basic fiscal surplus in 2020 will contribute to containing inflation and preserving debt sustainability. Mobilizing additional tax revenues and reducing untargeted electricity subsidies will generate resources to scale-up public investments and strengthen social safety nets.”Senegal, having completed discussions about a disbursement earlier in the month, received approval for USD 442 million yesterday (13 April), to help it offset reduced remittances, the decline in tourism and the subsequent impact on growth, as well as funding measures to restrict the spread of the virus.
Gabon has received USD 147 million to ease pressures caused by the drop in oil prices caused by the pandemic. Furusawa said: “The Covid-19 pandemic and collapse in oil prices have weakened the macroeconomic outlook, with the possibility that the pandemic could turn more severe and persistent than anticipated with lasting impact on commodity prices, growth, and fiscal and external positions.”
He added: ““In the short term, a temporary widening of the budget deficit is warranted to contain the virus outbreak and offset the social and economic impact of the pandemic. Additional external support will also be essential. The IMF emergency support under the Rapid Financing Instrument will support the authorities’ policy response and catalyse donor support.”
MORE TO COME
Other countries are coming under consideration for IMF support. On 7 April the institution announced that it had received a request from Nigeria for financial assistance under the rapid financing instrument (RFI).
IMF managing director Kristalina Georgieva noted that “Nigeria’s economy is being threatened by the twin shocks of the COVID-19 pandemic and the associated sharp fall in international oil prices. President Buhari’s administration is taking a number of measures aimed at containing the spread of the virus and its impact, including by swiftly releasing contingency funds to Nigeria’s Center for Disease Control and working on an economic stimulus package that will help provide relief for households and businesses impacted by the downturn”.
She added that the requested financing “would allow the government to address additional and urgent balance of payments needs and support policies that would make it possible to direct funds for priority health expenditures and protect the most vulnerable people and firms” and said the IMF’s executive board would consider the request as soon as possible.
Chad is another to have requested a IMF rapid credit facility disbursement, for budgetary and payment support. Discussions were completed with Chadian Minister of Finance and Budget Tahir Hamid Nguilin last week, with a decision due this month.
Meanwhile, the IMF has offered debt relief to 25 countries, of which the majority are in Africa: Benin, Burkina Faso, Central African Republic, Chad, Comoros, Democratic Republic of Congo, The Gambia, Guinea, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, Sao Tome and Principe, Sierra Leone and Togo.
Countries including Sierra Leone and Togo have existing IMF support programmes, which are being monitored to assess what further impact Covid-19 will have on their needs.
Back in January, the IMF committed USD 115.1 million in credit to Central African Republic, .
