## Background Note for Mobilizing with Africa

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### Africa is facing an unprecedented crisis — summary findings
- The continent’s economy is projected to contract by at least 1¼ percent this year — the worst-reading on record, a downward revision of almost 5½ percentage points from pre-COVID-19 growth projection.
- The informal sector accounts for the lion’s share of employment; the continent is set to experience its first increase in extreme poverty in two decades.
- Preliminary and conservative estimates show that the additional health costs to prepare, respond, and treat COVID-19 patients would be about US$36 billion if 10 percent of population in Africa are affected.
- Health system constraints cited: limited ICU beds, availability of healthcare professionals and respiratory materials, and limited health surveillance capacity for testing and contact tracing.

### Economic and fiscal impact
- Multiple severe shocks: disruption in production and domestic demand from containment, plummeting external demand, tighter global financial conditions, and sharp declines in commodity prices.
- Fiscal revenues have declined sharply; the sharp downward revision in growth in 2020 is expected to double the fiscal deficit relative to both 2019 outturn and the pre-COVID-19 fiscal deficit projection for 2020.
- Frontier and emerging market countries experienced capital outflows larger than peers, forcing erosion of foreign exchange reserves and limiting import capacity.
- Sovereign spreads have reached all-time highs in many countries, shutting access to international financial markets.
- Even assuming recovery and countries’ adoption of an economic support package similar in size to peers (1½ percentage points of GDP), the region faces a fiscal financing need of at least some US$114 billion in 2020.
- A larger and/or more prolonged health shock would increase the duration of containment policies and raise financing needs further.

### Country responses and policy measures taken
- Containment measures: suspension of international flights, closures of borders, schools and universities, curfews or restrictions on social gatherings and non-essential businesses.
- Health responses: strengthening and expanding detection, quarantine, and treatment capacity.
- Economic interventions: postponement of tax and social security payments, guarantees, corporate and household debt reprofiling, easing of financing conditions for SMEs, cash transfers to needy households, and reprioritization or suspension of capital spending to make room for social assistance and urgent health spending.

### International Financial Institutions (IFIs) and multilateral responses
- IMF actions:
  - Temporarily increased access limits to the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI); members can access up to 100 percent of quota annually.
  - As of April 10, 44 African countries have formally requested assistance from these facilities.
  - Under these facilities, the IMF can provide financial assistance of close to US$19 billion.
  - Board approved enhancements to the Catastrophe Containment and Relief Trust (CCRT) to provide grants for upcoming debt service to the Fund for the 29 poorest PRGT-eligible countries, of which 23 are in the continent. Relief initially for six months and up to two years if financing is secured.
- World Bank Group:
  - World Bank plans to provide emergency and budget support of US$28 billion to alleviate the health, social and economic impact of Covid-19 in the next fifteen months, of which US$18.2 billion in 2020.
  - Fast-disbursing emergency health projects for close to US$1.3 billion to 33 countries under the World Bank COVID-19 Fast-Track Facility (FTF).
  - IFC announced $8 billion COVID-19 related financing package to support private companies and their employees.
  - MIGA launched a $6.5 billion fast-track facility to tackle the health response and economic recovery.
- G20 initiative and other multilateral pledges:
  - G20 agreed to suspend debt service payments from IDA countries that request forbearance to all official bilateral creditors through end-2020; could temporarily provide space for almost an additional ½ percent of GDP.
  - G-20 called on private creditors to work through the Institute of International Finance (IIF) to participate on comparable terms.
  - African Development Bank pledged US$8.1 billion for COVID-related budget support financing, with almost a third intended for fragile countries.
  - European Union committed $5bn to help countries in Africa strengthen healthcare systems and tackle the impact of COVID-19 and aid long-term economic recovery.

### Remaining financing gap, debt pressures, and requested support
- Taking into account available IFI support and G-20 debt relief, Africa will still face a significant fiscal financing gap of over US$40 billion in 2020 which is expected to remain elevated next year.
- African Ministers of Finance requested a coordinated and prolonged debt relief program from official bilateral, multilateral and private creditors, including consideration of debt write-offs for fragile African nations.
- The region requested global leaders to commit $100 billion through IFIs, in addition to financing plans already announced.
- Debt scheduling and creditor composition in 2020:
  - Countries owe close to $6 billion in interest and amortization to official bilateral creditors in 2020.
  - A further US$16 billion is due to private creditors alone in 2020, with the latter projected to take up more than 10 percent of fiscal revenue.
- Without debt relief, limited access to capital markets and maturing liabilities could force countries into domestic demand compression, depletion of foreign-exchange reserves, and potential solvency crises.
- Contingent on more severe growth and revenue downturns, a broader group of countries may require debt relief and extensions of existing agreements.

### Financing options and institutional actions proposed
- IMF launched fundraising to significantly beef up its PRGT resources — including through contributors’ SDR holdings — to provide additional concessional financing to low-income countries in the recovery phase.
- The launch of IDA19 in July 2020 would offer the possibility to frontload financing to IDA countries.
- Multilateral development banks such as the World Bank, the African Development Bank, the European Investment Bank and the European Bank for Reconstruction and Development could continue to raise funds to scale up financing to Africa.
- Mobilize private investment, especially foreign direct investment, possibly with a re-energized G20 Compact with Africa.
- Improve access to regional and international markets through speedy implementation of the AfCFTA and enhanced trade agreements.

### Policy recommendations and priorities for use of resources
- Freed-up or newly mobilized resources should be directed to addressing the economic and health impact of COVID-19 in the most transparent and efficient manner.
- Policy measures to prioritize:
  - Support vulnerable households with targeted cash transfers.
  - Provide fiscal and liquidity support especially to firms affected by the crisis to prevent insolvency while reducing costs to doing business for all firms.
  - Refrain from taking short-term measures that can bring long-term damage to the financial sector.
  - Minimize disruptions in critical intra-African food supply chains and keep logistics open.
  - Activate early warning systems for food shortages and associated emergency food provisioning systems.
  - Strengthen debt management, enhance debt transparency, and improve debt portfolio composition, including prioritizing external borrowing on concessional terms.
- Once the crisis abates, resume reforms to accelerate growth, restore macroeconomic stability, and ensure medium-term debt sustainability:
  - Growth-friendly and pro-poor fiscal adjustment with emphasis on domestic revenue mobilization.
  - Reduction of non-tariff barriers, improvement in the investment climate, and leveraging existing e-government platforms to boost government effectiveness and market efficiency.

*Background Note for Mobilizing with Africa — High-Level Virtual Event, 2020 Spring Meetings, April 17, 2020.*

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_Source: https://www.imf.org/-/media/amsm/files/sm2020/mobilizing-with-africa-background-note.pdf_