COVID-19 is rattling the healthcare, financial and economic systems around the world. Although, the impact on Africa countries initially seemed to be limited to the external account and financial markets, which are considered secondary due to net foreign capital reversals. However, with an increasing number of cases in the continent, monetary and fiscal authorities are forced to double down on their efforts to curb the spread of the virus, as the primary impact of the outbreak is set to add an extra layer of domestic challenge to the growing problem.
The impact has been divergent across the region. In South Africa, large size foreign capital outflows across the financial market have resulted in a 9.6% depreciation in the rand in the month of March alone (or -19.2% YTD). For the crude oil-exporting countries in the region such as Nigeria, Angola, Libya, Gabon and Algeria, the collapse of crude oil prices driven by weaker demand has dampened the growth outlook for these countries. For other raw commodity-dependent countries, the shutdown in economic activities in the developed market is set to impair demand and the possibility of a widespread domestic outbreak is set to affect local supply, negatively. Also, countries dependent on tourism are on track for one of their worst years amid global lockdowns/ shutdowns.
Accordingly, amid the negative impacts the outbreak is likely to have on economic activities across the region, monetary authorities are opting for more accommodative policy actions to bolster economic activities. Notably, monetary responses have ranged from, interest rate cut to targeted liquidity injections, while fiscal responses have been in the form of travel bans, tax break and budget estimate revisions. While we laud the effort by both monetary and fiscal authorities across the region, the big concern is the capacity of the health sector to contain a largescale outbreak if the virus becomes widespread.
