## Background Note for Mobilizing with Africa II

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**Canonical URL:** [Background Note for Mobilizing with Africa II](https://www.imf.org/-/media/amsm/files/am2020/background-note-mobilizing-with-africa-ii.pdf)

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### COVID-19 impact and outlook for Africa
- Real GDP is projected to contract by at least 2½ percent in 2020, representing one of the worst outcomes on record for the continent. Recovery is expected to start next year but real GDP will only reach the pre-crisis level in 2022.
- Health and human costs:
  - More than one million cases have been reported across Africa, with 23,000 confirmed deaths representing 3 percent of confirmed deaths in the world (WHO 2020).
  - At over 650,000 cases, South Africa has the fifth highest number of COVID-19 infections globally.
  - Deteriorating economic conditions and loss of employment could cause a drop in household income up to 12 percent this year compared to a world without COVID-19.
  - Up to 43 million additional people could be pushed into extreme poverty in Africa, wiping out five years of progress in poverty reduction.
- The crisis risks reversing past decade gains in human capital (health, school enrollment, reduced stunting).
- Governments have reprioritized spending toward health and social costs, postponing capital spending; some countries face tradeoffs between debt service and social spending.

### African policy response
- Rapid, collective and individual policy actions to curb the spread of COVID-19 and protect lives and livelihoods, including the AU-Africa CDC establishment by March 2020 of the AU COVID-19 Response Fund to galvanize continental response and mobilize additional resources.
- Many countries have enacted legislation and established oversight bodies to ensure transparent planning, use, monitoring, and reporting of COVID-19-related spending (examples cited: Burkina Faso, Central African Republic, Gambia).
- Countries in Africa increased their COVID-19-related spending by about 2½ percent of GDP compared to 5 percent of GDP average spending by emerging market economies outside Africa.

### International financial support mobilized in 2020
- IMF:
  - Year-to-date disbursements of around $26 billion to over 40 countries in 2020, nearly ten times higher than the annual average of the last decade in percent of GDP.
  - Grants for debt service relief to 22 countries in Africa for $0.2 billion as part of the Catastrophe Containment and Relief Trust (CCRT).
- World Bank Group:
  - World Bank (IDA and IBRD) has provided about $21.9 billion in lending, 90 percent of which is on concessional transfers from IDA.
  - $881m in emergency health operations to 30 countries financed through the COVID-19 Fast Track Facility.
  - IFC has disbursed over $1 billion in financial support to entrepreneurs, SMEs, and financial intermediaries.
  - MIGA has issued over $640 million in guarantees through its COVID-19 Facility.
- G20 Debt Service Suspension Initiative (DSSI):
  - 26 African countries have requested to participate, resulting in additional fiscal space of $1.8 billion.
  - G-20 and international financial institutions have called on private creditors to participate in the DSSI.
- Other multilateral lenders:
  - African Development Bank and Islamic Development Bank have provided targeted financial support of over $4 billion.

### Medium-term external financing needs (2020–23)
- Cumulative gross external financing needs for the 54 countries in Africa are about $1.2 trillion for 2020–23, including:
  - Projected current account deficits ($510 billion), including interest payments ($120 billion).
  - External debt amortization ($590 billion) for 2020–23.
  - Resumption of non-health and non-social spending that were put aside ($90 billion, or 1 percent of GDP annually).
  - Additional spending to mount a crisis response in the health and social sectors ($40 billion or 0.4 percent of GDP annually).
- Under current trends, expected commitments from the international community are projected to fill less than a quarter of the projected financing needs during 2020–23.
- Assuming private capital inflows remain in their downbeat phase, reaching only up to 75 percent of the level in pre-crisis years (2015–19), the financing gap is projected to be around $345 billion for 2020–23.
- Africa’s lowest income countries, eligible for the IMF’s PRGT, account for more than 40 percent of this gap.

### Recommended concerted international support
- Debt relief:
  - Recommend extending the DSSI initiative for up to one year (with a mid-term review), along with flexibility in the repayment schedule to provide additional fiscal space and avoid bunching of repayments.
  - For countries with high risk of debt distress or unsustainable debt, condition DSSI access in 2021 on requesting and working toward a Fund-supported reform program aimed at reducing debt vulnerabilities.
- Continued World Bank Group support:
  - Over the IDA19 replenishment period (FY21–23), about $50 billion in concessional resources will be available to eligible countries in Africa.
  - Use of Development Policy Operation, Investment Project Financing, and Programs-for-Results instruments to support reforms, pandemic-readiness, and long-term development goals.
  - IFC and MIGA to collaborate with the World Bank to pool resources and mobilize private sector investment by packaging and tranching risks.
- PRGT resources and concessional support:
  - Member countries have raised over SDR 15 billion ($21.2 billion) in new PRGT loan resources.
  - The Fund will review its concessional facilities and financing by the end of the year, including access limits, to ensure appropriate levels of concessional support while maintaining PRGT self-sustainability.
  - Significant additional grant pledges will be required to increase the PRGT subsidy account and to unlock a possible third tranche of the CCRT to provide 23 of the poorest PRGT-eligible African countries.
- Continued IMF GRA lending:
  - IMF will continue to support EMs and better off frontier emerging markets in the region through its GRA lending instruments by relying on its war chest of $1 trillion.
- Additional resource mobilization needed:
  - Stepped-up financing from other official and private sources, maximized lending capacity from regional development banks, and stronger rebound in private capital inflows are needed to close the financing gap.

### Policy reforms and investments to ensure a resilient recovery
- Revenue mobilization and governance:
  - Raising revenues worth 1 percent of the continent’s GDP could mobilize additional resources equivalent to $26 billion annually.
  - Governance and public financial management measures to increase transparency, efficiency and accountability can unlock private sector investment.
- Investment priorities to create jobs and boost productivity:
  - Invest in energy, human capital, women empowerment, and boosting agricultural productivity to create more, better and inclusive jobs.
- Digital infrastructure and e-government:
  - Invest in digital infrastructure to support e-commerce, digitalization, expand coverage and improve targeting of social safety nets, and to boost government transparency and accountability.
  - Address risk of a growing digital divide that could become entrenched and harm long-term productivity and growth.
- Trade integration and AfCFTA:
  - Use the African Continental Free Trade Area (AfCFTA) to develop regional trade and reorganize value chains; reduce cross-border frictions and promote trade facilitation to boost regional competition, productivity, and food security.
- Climate resilience:
  - Invest in technologies and infrastructure that support public goods like clean air, flood defenses, resilient infrastructure, and renewable energy to reduce ex-post cleanup and recovery costs.

### Conclusion — key deliverables requested of partners
- Increase PRGT loan and subsidy resources to raise PRGT access limits while ensuring PRGT self-sustainability.
- Mobilize CCRT grant resources to ensure debt-service relief for the full 24 months.
- Increase concessional lending and grants by the World Bank, MDBs, and bilateral donors.
- Extend the DSSI for up to one year to provide liquidity support, and strengthen the international architecture for debt restructuring to assist countries with unsustainable debt.

*Background Note for Mobilizing with Africa II — High-Level Virtual Event, 2020 Annual Meetings, October 9, 2020*

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_Source: https://www.imf.org/-/media/amsm/files/am2020/background-note-mobilizing-with-africa-ii.pdf_