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Travel restrictions and lockdowns imposed to contain the spread of COVID-19 continue to impact the economic outlook for low- and middle-income countries. Despite the unabated increase in infections (reaching 3.3 million confirmed cases and over 238,000 deaths this week), some countries have started reopening farms and factories to combat the threat of massive economic loss and hunger. Multilateral emergency financing, expanded social safety nets, and tax measures remain top policy priorities for affected countries.
Here are the most recent headlines from Africa, Asia, and Latin America divided into sections: growth and income analysis, sector and sub-population analysis, economic policy responses, and commentary.
Poverty and food security analysis
Mahler et al. at the World Bank warn that “COVID-19 is likely to cause the first increase in global poverty since 1998” by pushing 49 million people into extreme poverty in 2020. Of this figure, 23 million is estimated to be from sub-Saharan Africa and 16 million from South Asia. The model is based on data from World Bank’s PovcalNet and the IMF’s World Economic Outlook projections.
The May 1 update of Gentilini and others’ global analysis of social protection responses reports that “a total of 159 countries (8 more since last week) have planned, introduced or adapted 752 social protection measures in response to COVID-19.” Entries in the last week include the Republic of “Congo, Dominica, Gambia, Somalia, South Sudan, Sudan, Turks and Caicos, and Tuvalu.”
Hidrobo and others argue for gender-sensitive social protection responses: “Expanding access to health care via fee waivers or providing automatic health insurance enrollment can support women in continuing to seek care for critical, routine maternal and child health and reproductive health services.”
Headey and Ruel look ahead to a potential nutrition crisis from COVID-19 and propose ten steps to prevent (or ameliorate) it, including recommendations to “support enhanced homestead food production to increase access to nutrient-rich vegetables, fruits, and eggs and improve diet quality. These programs are consistent with social distancing, can use surplus household labor, including women, and will increase consumption of nutrient-rich foods.”
Growth and income analysis
The United Nations Economic Commission for Africa estimates Africa’s growth to slow to 1.8 percent in the best-case scenario or to contract to -2.6 percent in the worst-case scenario from the 2.9 percent in 2019 and the pre-pandemic 2020 forecast of 3.2 percent. They estimate that “between 5 million and 29 million people will be pushed below the extreme poverty line of $1.90 per day owing to the impact of COVID-19.”
“Fitch Ratings has revised South Africa’s GDP forecast to minus 5.5% for 2020 due to the coronavirus crisis. The banks’ asset quality and earnings will be pressured in 2020 by a deep economic recession, and by widespread disruption to industries from social containment measures.”
Moody’s has downgraded its rating for banking systems in South Africa, Nigeria, and Morocco from stable to negative and “expects the coronavirus to cause banks’ asset quality to deteriorate, put pressure on profitability, and also hit economic growth in each country.”
Al Jazeera reports on the United Nations World Food Programme’s warning that food insecurity could more than double in just three months as coronavirus spreads in East Africa. WFP estimates that “some 20 million people currently do not have secure provisions of food across nine countries in the region: Burundi, Djibouti, Ethiopia, Eritrea, Kenya, Rwanda, Somalia and Uganda.”
The pandemic continues to exacerbate food shortages in Africa, reports George on the World Economic Forum blog. Demand for staples such as rice remain high, but fear keeps wholesale buyers and food truck drivers from buying and transporting produce from farmers. “While domestic crops and capacity go to waste, the imports … have also dried up as major suppliers, including India, Vietnam and Cambodia, have reduced or even banned rice exports to make sure their countries have enough.”
Mbole (FSD Kenya) report on community-based finance service associations (FSA) in Kenya struggling with the economic fall-out due to the pandemic. “Most of the loans given by FSAs are for small businesses which are now closed. Furthermore, groups cannot meet, decreasing the effectiveness of group sanctions in maintaining pressure to repay loans. By end of April, less than two months since the first positive case of COVID-19 was reported in Kenya, only about 60% of the outstanding loans were being serviced.”
In the Democratic Republic of Congo, the mining minister warned that closures of mines will lead to catastrophic economic and social crisis for the country. “Exports of cobalt, a metal used in batteries, fell by 15.2% in the first quarter compared to the same period last year, he said in the memo, while copper exports increased by 12.8%...The DRC would not be able to withstand an abrupt halt in the mining production of the flagship projects operating there if they invoked force majeure.”
Syal reports on the International Air Transport Association’s estimates on damage to African aviation due to the travel restrictions and lockdown. “African airlines are expected to suffer a cumulative loss of $6 billion in passenger revenue in 2020 when compared to 2019 numbers. Job losses in aviation and related industries could grow to 3.1 million. This is 50% of the region’s total aviation-related workforce.” Worst-hit countries are South Africa, Nigeria, and Mauritius.
Economic policy responses
Kenya’s tourism secretary announces a two-year plan to “promote national and regional tourism…and accelerate the recovery of the tourism sector” in a bid to cut the country’s dependence on international tourism. “Due to its importance in the Kenyan economy (the country's third-largest source of foreign exchange after remittances and agricultural exports), the authorities expect the slowdown in the sector to have a strong impact on the country's economic growth.”
Nigeria’s president announced the gradual reopening of the capital Abuja as well as Lagos, its largest city, citing “the very heavy economic cost” of the month-long lockdown. “Ordinary Nigerians, many of whom rely on daily wages to survive, have been left without enough money to eat.” Dusk-to-dawn curfew and wearing masks in public will still be implemented.
The IMF recently approved emergency lending to Cabo Verde ($32 million), Comoros ($12 million), Democratic Republic of Congo ($363 million), Ethiopia ($415 million), Mali ($200 million), Mozambique ($309 million), and Nigeria ($3.4 billion) under its Rapid Credit Facility and Rapid Financing Instrument programs. This brings the total approved emergency financing to sub-Saharan African countries to $8 billion.
Dushime, writing for the World Economic Forum, reports on ways the tax administrations of African countries have responded to the crisis. Nigeria, Rwanda, Uganda, Algeria, Botswana, and Mauritius extended filing deadlines or introduced waiver of tax penalties. Kenya reduced tax rates while the Democratic Republic of Congo and Côte d'Ivoire have both issued “exemption of import duties and taxes on health equipment, materials and other health inputs.”
South Africa announced a fiscal stimulus package of over $26 billion, or 10 percent of the country’s GDP. South African Reserve Bank has also cut the repo rate by 200 basis points, “in effect unlocking at least R80 billion in the real economy.” The “World Bank, the IMF, the BRICS New Development Bank and the African Development Bank had been approached for loan financing,” reports Smith (CNBC).
Habiyaremye (Al Jazeera) makes the case that a pandemic food crisis in Africa can be prevented. “The African Union should urge all governments to follow Rwanda and South Africa's lead with price controls to reassure consumers and stop the spread of food price hikes. The extent to which the COVID-19 pandemic affects food markets is conditional upon countries staying calm, even in the face of shocks to the food supply chain.”
Mohamed, former chair of the World Trade Organization General Council, writes that “protectionism is weakening Africa’s – and the world’s – response to COVID-19… Unnecessary export restrictions on food, medical equipment, and essential drugs can have far-reaching consequences... Such measures will not only impede progress in managing the current crisis, but will also compromise African countries’ longer-term efforts to tackle poverty and improve living standards.”
Asia and the Pacific
Growth and income analysis
The Asia-Pacific Economic Cooperation expects economic growth to decline by 2.7 percent in 2020 (down from last year’s 3.6 percent growth). “This will be the most significant fall since the near-zero growth rate logged in 2009 during the global financial crisis.”
For Asia and the Pacific, the International Air Transport Association estimates a ”revenue decline of $113bn compared to last year,” the biggest drop across all regions. “Asia-Pacific will also see a 50% decrease in passenger demand this year compared to last year.”
Southeast Asia’s largest bank, DBS, reports a 29 percent drop in first-quarter year-over-year net profits, setting aside $773 million to “cover potential losses from the coronavirus pandemic… [including] general allowances to anticipate a deeper and more prolonged economic impact from the pandemic.”
A Reuters’ poll from 15 analysts expects Indonesia to slow its first-quarter GDP growth to 4.04 percent from 4.97 percent in the previous quarter. This would be Indonesia’s slowest growth in 18 years.
Sector and sub-population analysis
A phone survey of microfinance borrowers and loan officers in Pakistan suggests that during the country’s lockdown, “week-on-week sales and household income both fell by about 90%... 70% of the sample of current microfinance borrowers reported that they could not repay their loans; loan officers anticipated a repayment rate of just 34% in April 2020.” (Malik et al.)
A phone survey from urban slums and rural areas in Bangladesh household incomes dropping between 63 and 75 percent between February and April, with food expenditures dropping by about a quarter. (Rahman and Matin)
India’s demand for steel is expected to contract to 7.7 percent in 2020. The original forecast is a growth in steel demand by 5.1 percent to 106.7 million tons, but the Indian Steel Association has dropped the demand forecast to 93.7 million tons. “Most steel companies have faced disruptions and suspended operations at some of their plants.”
China’s nickel prices jumped by 4.4 percent “as major producer Vale trimmed its output forecast of the metal this year… Vale’s cut underlined concerns over supply shortages after the Philippines, a major nickel producer, shut down some mining activities to curb coronavirus transmission, while demand has picked up slightly as China reopened its economy.”
On a modestly more positive note, Nuwer reports that illegal trafficking in wildlife has also been negatively affected by the lockdown and travel restriction in cross-border trade. “The pandemic has prevented organized criminal gangs in Southeast Asian countries from moving large quantities of ivory and pangolin scales into China. But any limits on the illegal wildlife trade are likely to be temporary.”
Economic policy responses
India starts to reopen factories and small business in rural areas not heavily affected by the pandemic. This comes after the country’s 21-day lockdown last month which was extended by another 19 days. “Small businesses reopened in the rural parts of most populous Uttar Pradesh after the lockdown in late March but police were deployed to ensure people maintained social distancing.”
Bangladesh reopened 600 garment factories and is set to open at least 856 more factories “after the pandemic cost the industry more than $3 billion in orders that were cancelled or suspended,” despite increasing cases of COVID-19 in the country.
Indonesia announced that it “will not require small companies to pay income tax for six months and it will also subsidise insurance premiums for workers to help cushion the blow from the coronavirus pandemic. The government has already announced tax breaks for a wide range of sectors as part of a $25 billion package, while the central bank has cut interest rates twice this year in response to the COVID-19 outbreak and its economic impact.”
The Philippines raised $2.35 billion “through the sale of 10-year and 25-year U.S. dollar bonds, to help finance this year’s budget and measures to mitigate the economic impact of the coronavirus outbreak. The 10-year and 25-year bonds were sold at 2.457% and 2.95%, respectively.”
China cuts its benchmark lending rate by 20 basis points for one-year loans. “The move was the second cut to the lending benchmark rate this year, and the latest reduction in one of China’s key lending rates.”
Japan announced a $930 (100,000 yen) handout “for all who seek them.” “The new policy, which came hand-in-hand with a decision to widen an emergency declaration to cover the whole country, will cost more than 14 trillion yen ($130 billion)…The original plan was to give 300,000 yen handouts to households that could prove a loss of income, a condition that could have slowed down distribution of cash and increased the risk of infection at administrative offices handling requests.”
Kang and Rhee writes for the IMF blog that a post-coronavirus recovery in Asia will require “extending a ‘whatever-it-takes’ lifeline to small business.” They highlight the greater risk small and mid-sized enterprises face “as firms struggle to repay loans and pay workers in the face of a sudden collapse in cashflow and tighter credit.” They suggest governments create “a special purpose vehicle—a temporary public entity…to facilitate new working capital loans to small and mid-sized firms.”
In another blog for the IMF, Dabla-Norris and Rhee summarize several broad policies countries are implementing to protect informal workers, who account for about 60 percent of non-farm employment in the Asia-Pacific region. They also outline a post-pandemic “New Deal” for the region: investing in public health infrastructure and coverage, setting up more expansive and inclusive safety nets, and investing in digital infrastructure.
Chen writes for the Diplomat on rethinking Timor-Leste’s state of emergency and its unequal economic impact on the country’s most vulnerable. About 41 percent of the population live below the poverty line, and the curfew and travel restriction have already caused income loss to daily cash workers. “Street venders have to walk miles to find customers; taxi drivers who lose their income have to depend on neighbors for food; farmers have no way to sell their produce in the cities; small shop owners have no customers even if they open their shops the whole day.”
The United Nations Development Programme released a position note encouraging “global solidarity and coordination.” The note outlines several policy priorities including prioritizing safety nets, protecting women, and designing sustainable “development-oriented” stimulus measures.
Post-Courier reports that “Papua New Guinea’s foreign currency reserves are being put under renewed pressure by the coronavirus pandemic, but there is hope that gold exports could partially offset falling prices and lower demand in other commodity markets.”
Pacific island nations are facing big economic shocks due to the pandemic, on top of climate-related challenges such as the recent cyclone that devastated the region. United Nations trade and development director Coke-Hamilton warn that “small island developing states are most vulnerable not only because they are highly dependent on tourism, but also because any shock of such magnitude is difficult to manage for small economies.”
Growth and income analysis
“Latin America … may experience a contraction of income between 11% (in a “limited” scenario, with eight-week confinements and a more or less rapid recovery in domestic demand) and 22% (under “prolonged confinement,” around 12 weeks, and greater tension in financial conditions) accumulated in 2020 and 2021, according to a simulation by the Bank of Spain.” (Fariza)
Moody’s predicts a 7 percent contraction of Mexico’s economy for 2020, 6 percent for Argentina, and 5.2 percent for Brazil. (notimérica)
Brazilian government minister Salim Mattar estimated that “the unemployment rate in [Brazil] may even double due to the impact of the coronavirus crisis on the economy, and made a strong call for an economic recovery based on the attraction of private investments.” (Ayres)
“The Executive Secretary of the United Nations' Economic Commission for Latin America and the Caribbean, Alicia Bárcena, says borrowing is not an option for Caribbean countries, stating that access to concessional funding and debt relief is needed to face the coronavirus (COVID-19) pandemic.” (Jamaica Observer)
Venezuelans are returning home from Colombia in the wake of the downturn in economic opportunity in the face of the pandemic. (Estepa)
The value of Mexico’s peso has been falling. (infobae)
The Government of Ecuador predicts 508,000 people will lose their employment and 233,000 additional people will move into informal employment. (El Comercio)
Sector and sub-population analysis
The UN Food and Agriculture Organizations predict that “hunger and poverty are set to spike in Latin America and the Caribbean as the impact of the novel coronavirus ravages the region´s economies and disrupts supply chains,” Reuters reports. “There should still be plenty of food available in both regional and international reserves but warned hobbled supply chains could complicate access to those stores, especially for the poor.”
The sale of vehicles in Brazil has fallen by 80 percent. That has a large effect on Argentina’s automobile industry, as most of its car exports go to Brazil. (ámbito.com)
Year-on-year tourism revenues in Brazil may fall 40 percent in 2020 according to a new study. (Istoé Dinheiro). Read the original study from the Getulio Vargas Foundation here.
Economic policy responses
In the Dominican Republic, the central bank is holding interest rates constant at 3.5 percent. (El Día)
Chile approved an “emergency family income” stipend last week, amid debate as to whether it was large enough. (Diario Las Américas)
According to Moody’s, “Mexico and Brazil are two of the countries that have adopted less rigorous measures to stop the virus.” (notimérica)
Peru is offering a new economic stimulus of $223 for 6.8 million households. (Montevideo Portal)
In Ecuador, more than 170 small and medium enterprises were approved for express loans. (El Universo)
Granados proposes eight ways that investment promotion agencies can attract foreign investment during the pandemic. For example: “Providing support for companies that are adapting their manufacturing lines to produce medical products and other essentials.”
Barreix, Garcimartin, and Verdi propose how to improve tax policy in Latin America in the wake of the crisis: “Don’t forget about equity. The crisis itself is regressive, so it’s important to avoid the same in its wake” (our translation from Spanish).
The economies best prepared to confront the crisis are those with low debt-to-income ratios, specifically Colombia, Chile, and Peru, according to economist Nora Lustig. (Paredes)
Carrança gathers five proposals from five different Brazilian economists for how to revive the economy post COVID-19: (1) renew Brazil’s economic reform agenda that was underway pre-crisis, (2) raise the ceiling on government spending, (3) make key investments in strategic sectors, (4) renew public investments, and (5) establish a permanent basic income.
Economist Morales Alves in Brazil predicts that the country’s population may feel the economic impact well into 2021 and potentially through 2024. (Strozzi)
Author order on this blog post was determined randomly.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.