As Sub-Saharan African economy is waking up to its first recession in 25 years due to COVID-19, Ethiopia faces an imminent economic crisis in which experts say could be eased if the government introduces continuous recovery and mitigation measures.
With the global economy entering dramatic fall, jobs have been lost, industries remain shut while trade and transaction hitting an all-time low in some cases.
The economic impacts which coronavirus has already inflicted have been worst if not more than the health crisis. Disruptions caused by containment measures and the public response are resulting in the economic slowdown.
In some cases, the countermeasures such as lockdowns, restriction of mobility are driving economies to plunge into the worst-case scenarios feared to escalate the social crisis.
Already struggling with poverty, developing economies are awakening to the great depression-like situation and experts warn as it could cause great damage unless proper interventions are put to effect and resources are mobilized by the international community.
The epidemic’s repercussion is already felt by different sectors. Be it trade or manufacturing sectors, economies are increasingly facing pitfalls which are leading countries to put in place different austerity and stimulus measures.
According to the latest Africa’s Pulse, the World Bank’s twice-yearly economic update for the regional growth in Sub-Saharan Africa, Africa has been significantly impacted by the ongoing coronavirus outbreak and is forecast to fall sharply from 2.4% in 2019 to -2.1 to -5.1% in 2020, the first recession in the region over the past 25 years, COVID-19 will cost the region between USD 37 billion and USD 79 billion in output losses for 2020 due to a combination of effects, indicates the report.
According to data the Ethiopian Economic Association sent to The Ethiopian Herald, depending on containment efforts and pandemic duration, the pandemic will slow down economic growth and exacerbate poverty in Ethiopia. Delays in the containment of the virus will lead to a large reduction in economic growth (up to 10 percent reduction in the gross domestic product).
With a depressed economic activity and prolonged pandemic duration, poverty will worsen in both rural and urban areas. At the national level, poverty incidence will increase up to 38.4 percent, with rural, semi-urban and urban poverty rates will climb to 42.1, 29.1 and 20 percent, respectively. If proactive interventions are not taken to shorten the pandemic duration and safeguard the economy, the disease could multiply the socioeconomic costs, leading to a vicious circle of crises.
Already, millions of wage workers are living hand-to-mouth; further layoffs under the corona economy present a grim existential challenge for the millions in these and other sub-section of the population.
The Jobs Creation Commission’s modeling also projects that about 1.4 million jobs could be lost in the manufacturing, construction and services sectors over the next three to six months due to the COVID-19 pandemic. The figure could also jump as 2.5 million in the worst-case scenario.
Some economic sectors are most vulnerable to COVID-19 impact and some should continue to operate in this very trying time as Ethiopia has limited resources and cannot inject, unlike the developed nations, a huge sum of money to stimulate the economy, says Dr. Getachew Diriba, Chief Executive Officer of Ethiopian Economic Association.
The government can neither underwrite the bankruptcy of the private sector as well. In its capacity, the government has already taken measures such as extending the loan payment period, relaxing reserve and increases the liquidity of small manufacturers.
“The National Bank has taken a combination of emergency fiscal and monetary policy actions cutting interest rates and providing extraordinary liquidity assistance. As there is no one size fits all solution, it requires continuous recovery and mitigation interventions of economic impacts.”
The government is highly engaged in soliciting funds for COVID-19 counter mechanism. The government may have to scale up the existing urban and rural safety-net programs to help communities even people who would lose jobs due to the impact of the virus, according to the CEO.
The Association indicates that Ethiopia has a well-functioning rural and urban safety-net organizational arrangement, programs, delivery methods such as cash and voucher. These must now be tested and made to work using existing stocks as well as activating strategic grain reserves.
It also calls for mobilizing social self-help institutions such as Idir and Maheber, and linking them with the formal structure to provide coordinated support to the most vulnerable population during the pandemic.
Dr. Eyob Tesfaye, a macroeconomist speaking to The Ethiopian Herald previously said that since major trading partners have seized production and others are banning imports, the virus will surely be affecting Ethiopia’s different sectors primarily trade and export products such as the floriculture. “At the end of the day, the overall economy will suffer major setbacks”.
As we witnessed service providers are and will also sustain a great deal of impact which includes airlines, travel and hotel services. Manufacturing companies that import various materials from abroad also face shortage ultimately affecting production.
Also affected will be remittance, since companies in overseas are laying off employees and shutting down factories, the amount of remittance being sent by diaspora will plunge, he notes.
“Service providers and exporters heavily rely on debt offered by the public sector. The government needs to consider extending the credit repayment period and utility bills.”
Austerity measures are not on the card, the government should come up with stimulus measures. The government needs to make sure the economy does not entirely come to the collapsing stage since it would have unprecedented implications. The country should also come up with various social protection interventions, especially targeting workers in the informal sectors.
“It also finds alternative means of funding either through grant or macroeconomic policy revision to prevent economic paralyze. The private sector needs to cut spending, continue production if they are to cope up with the pandemic impacts.”
Ethiopia has requested about 1.6 billion USD emergency funding from the Development Assistance Group (DAG) to aid people that would be affected by the virus. The World Bank recently said that it is funneling 160 billion USD in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery.
The Ethiopian Herald April 17/2020
BY DESTA GEBREHIWOT
