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Home Economy

Economic recovery to moderate surge in fiscal deficits resulting from Covid interventions – AfDB

5 years ago
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Increased fiscal deficits witnessed across the continent due to the advent of the Coronavirus pandemic is expected to moderate this year on the back of modest fiscal consolidation measures and the resumption of economic activities.

Fiscal deficits are estimated to have nearly doubled to 8.4 percent of GDP in 2020, from 4.6 percent in 2019 because of heavy stimulus spending by many countries to alleviate the pandemic’s economic impact, according to the African Development Bank (AfDB).

Fiscal measures included above-the-line budgetary support through investments in health systems, expansion of social protection programs, and support to the private sector, for example through tax reliefs.

Some countries have also used below-the-line measures such as guarantees to support ailing businesses. The average size of the fiscal stimulus packages deployed by countries is about 3 percent of GDP, but it varies significantly, from about 32 percent in Mauritius to 10 percent in South Africa to less than 1 percent in Tanzania.

In Ghana, the government spent in excess of Ghs 11 billion representing a little over 3 percent of GDP in providing stimulus packages and freebies to businesses and households respectively to help mitigate the adverse impacts of the pandemic.

Ghana’s fiscal deficits end-2020 stood at 11.4 percent of GDP with debt swelling to Ghs 291 billion representing 76.1 percent of GDP.

Besides the additional spending related to COVID–19 interventions, fiscal deficits in 2020, the AfDB notes were the result of revenue shortfalls for oil exporters, a narrowed tax base due to the economic contraction, and a decline in both imports and exports.

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Adding growing debt levels and debt service burdens have squeezed available fiscal space for most countries, increasing gross financing needs.

AfDB estimates that Africa’s GDP contracted by 2.1 percent in 2020, the continent’s first recession in half a century.

The continent’s GDP is however, projected to grow by 3.4 percent in 2021. AfDB further estimates that African governments will require additional gross financing of about $154 billion to effectively respond to the Covid-19 crisis.

Source: norvanreports
Tags: African Development Bank (AfDB)Coronavirus pandemicfiscal consolidation measuresfiscal deficitsresumption of economic activities
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