• August 13th, 2020

SADC should prioritise investments to save economies

Southern African Development Community (SADC) member states should be developing roadmaps and action plans that prioritise investments and channel scarce resources to identified economic sectors to resuscitate their economies, strengthen resilience and improve competitiveness. According to the SADC Secretariat, the relaunched strategies should be premised on the existing SADC macroeconomic convergence programme.

While the focus should be on health and humanitarian sectors due to the damage caused by the virus, the SADC Secretariat states there is also a need to strengthen early warning systems, response and mitigation of pandemics and disasters that have proved to be major threats to education, tourism, informal sectors and other sectors. 

In a recent communique, the Secretariat cautions there are no signs that the virus may subside in the short to medium-term. 
“In addition, even if a solution is found in the short or medium-term, the damage to global economics will remain with us even in the long-term,” read a statement from the SADC Secretariat.  
The increase in the number of Covid-19 lockdown days and international travel restrictions imposed at the peak of the coronavirus crisis has significantly affected economic activities, education, tourism, aviation, major stock market indices and other sectors of the economies globally. 

The developments of April 2020 show that health sector interventions, regional and international funding, fiscal and monetary policies have played a crucial role in protecting people’s lives and stabilising vulnerable economies. 
As of December 2019, prospects in terms of fiscal deficit and public debt were mixed. 

“While some SADC member states had made commendable improvements in their fiscal positions, a majority were already grappling to manage their increasing public debt, which was on the brink of breaching the regional threshold of 60% of GDP,” said the SADC Secretariat. 
In addition, the Fiscal Monitor released by the International Monetary Fund (IMF) in April 2020 highlighted that Covid-19 outbreak and its financial and economic consequences will cause a major increase in fiscal deficits and public debt load in 2020.
Fiscal policy measures that are implemented include government-funded paid sick and family leave, transfers, unemployment benefits, wage subsidies and deferral of tax payments. The increasing public debt levels will put additional burden on member states resources as debt service costs increase.

The SADC Secretariat further noted that the impact of Covid-19 is changing the economic landscape around the world, including the SADC region. 

“As the pressure mounts, industries are moving swiftly to build resilience, while governments are mobilising to safeguard citizens and manage the social and economic fallout. Combining these factors with the on-going lockdowns around the globe, the platform to trade fairly is slowly being skewed with some players losing while others winning,” the Secretariat stated.  
Meanwhile, sectors that have been most severely impacted by Covid-19 include tourism and leisure, aviation and maritime, automotive, construction and real estate, manufacturing, financial services, education and the oil industry. 

On a positive, despite strong global misconceptions about the transmission of Covid-19 pandemic, the global functioning of the food processing and retail business has remained stable. The food processing and retail business largely benefited from the recent announcement by the World Health Organisation (WHO) and World Food Organisation that, it is highly unlikely that people can contract Covid-19 from food or food packaging. As such, companies in food processing and retail have witnessed a rise in demand. However, this demand is only in the short-run and has the potential to fuel inflation.

International and regional institutions are stepping up to complement national efforts, including to help the most vulnerable developing countries which are already grappling with debt pressures. These include the IMF Catastrophe Containment and Relief Trust (CRRT), decision by G20 Ministers of Finance to suspend debt service payments for the world’s poorest countries through the end of 2020. The African Development Bank recently issued a US$3 billion “Fight Covid-19” social bond, while the African Export-Import Bank has set up a US$3 billion credit facility. 

Combined, official creditors have mobilised up to US$57 billion for Africa in 2020 alone. This includes the recent US$18 billion the IMF and the World Bank made available to enhance front-line health services, support the poor and vulnerable and keep economies afloat in the face of the worst global economic downturn. 

“The impact of Covid-19 is likely to trigger a wave of defaults around the world. In December 2019, already global debt levels had reached an all-time high of US$253 trillion. About 70% of global debt is held by advanced economies and about 30% is held by emerging markets and developing countries. Globally, a significant debt share is held by nonfinancial corporations and governments. With the decline in economic activity and commodity prices, government revenues are expected to fall drastically. In the short-run, there have been calls for a comprehensive package of debt relief to help poor countries cope with the Covid-19. The low and middle-income countries are currently experiencing capital flight and unsustainable debt burdens,” warned the SADC Secretariat. 

In the interim, several low and middle-income countries are currently spending more than 20% of their revenue to service debt, which crowds out much-needed health, education and infrastructure expenditures. 
An IMF April 2020 report indicates that global government spending and revenue measures towards sustaining economic activity since the beginning of 2020 up to April 2020 amounted to US$3.3 trillion and that loans, equity injections and guarantees totalled an additional US$4.5 trillion. Due to the increasing need for resources to deal with Covid-19, borrowing by governments globally is projected to increase to 9.9% in 2020.

Staff Reporter
2020-05-22 10:14:23 | 2 months ago

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