COVID-19 impact on the continent’s economy might be much more grave than anticipated   

15 April 2020: A report recently released by African Union predicts that this notorious virus will cause Africa’s economy to shrink by 9% and cause them a loss of 30% in fiscal revenue, thus leaving the African countries at at the mercy of international borrowers.

If that wasn't bad enough, the countries also risk losing a whopping US$500 billion of tax revenue. Owing to the continents import based economy, it’s not a surprise that their biggest source of tax revenue is from duties on goods and services. In 2017, 53.7% of tax revenue came from duties on imports. But with the enforcement of border closure due to the pandemic, imports have significantly declined, causing a big damper on these revenues.

Africa’s average tax to GDP ratio is already walking on wafer-thin ice at 17.2%, compared to Latin American countries of 22.8% and OECD countries of 34.2%. This pandemic may just drive them to go tapping on the doors of international lenders, despite most of the countries already being knee-deep in debt.

According to the report “Governments will have no option other than to rely on international markets, which may increase countries debt levels. Debt should be used for productive investment or growth-enhancing investments rather than maintaining their spending plans. There is a high probability that many countries could face an implosion in the stock of external debt and servicing costs due to the increase in fiscal deficits, as more emphasis will be put on fulfilling social needs – including health care systems, socioeconomic stimulus to householders, SMEs, and enterprises.”

“Yet, one-third of African countries are already, or about to be, at high risk as a result of recent sharp increases in debt levels owing to the favourable international rise of bilateral donors and non-residents’ subscriptions to nationally issued bonds on the African market. Debt in many African countries is on concessional terms, and multilateral institutions have no other choice than to help countries secure even easier terms. However, countries with commercial debt from emerging economies will need to refinance in the current economic crisis,”.

The solemn prediction doesn't end here, the report further added that public resources will be massively affected due to the lack of resources that the coronavirus pandemic will create.

Expenditure on infrastructural development could dive down by at least 25% due to lower tax revenues and difficulty in mobilising external resources.

Reporting for EasyKobo on Wednesday , 15 April 2020 in Lagos, Nigeria

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