The global economy is reeling from the COVID-19 pandemic which is not just a health crisis, but also a socio-economic crisis. Consumer and investor confidence has been eroded, negatively affecting aggregate demand. The crisis is likely to reduce household expenditure and consumption as well as corporate investments significantly.
A slowdown of the global economy is envisaged, with the global economy now only projected to grow by less than 1%. The International Monetary Fund has re-assessed the global economic prospects for growth for 2020 and 2021, declaring that the world economy has now entered a recession worse than that experienced in 2009.
Many workers are likely to lose their jobs as companies face bankruptcy. The International Labour Organisation estimates that 25 million jobs could be lost worldwide as a result of the pandemic. The duration, depth and severity will depend on: how far and fast the virus spreads; how long before a vaccine is found; and how effective policymakers will be in mitigating the damage or fallout.
The pandemic has heightened the debt distress among African economies. Most African governments are already facing rising deficits and increased pressure on their currencies. Cumulatively, developing countries are projected to suffer income losses in excess of US$220 billion. These income losses will have far-reaching implications on socio-economic rights such as education, health, food security and nutrition.
A number of countries have imposed lockdowns. The lockdowns will result in further decline in output and incomes. Many African countries do not have comprehensive social safety nets, which will likely exacerbate poverty levels. In the absence of significant fiscal stimulus packages, the fallout from the pandemic will result in a significant reduction in Africa's gross domestic product growth in 2020.
The Zimbabwean economy has not been spared and is being adversely affected in many ways: disruptions in trade which have affected the capacity of the country to import raw materials, decline in tourist arrivals, decline in commodity prices, and diversion of government resources to fight the outbreak would reduce funds available for key development priorities. Zimbabwe has a huge diaspora population and remittances are going to be affected. Foreign direct investment inflows are also going to be affected.
The COVID-19 pandemic coincides with the country's 2020 tobacco marketing and trading season. Tobacco is one of the major foreign currency earners with export earnings reaching US$142,2 million by February 2019, an increase of 122% from US$63,5 million recorded in the comparative period in 2018.
Sadly, the major source markets of our flue-cured tobacco, namely China, South Africa, selected European countries, among others, are the largest hit by Covid-19. Thus, subdued demand and economic slowdown in these countries will likely have a domino effect on the country's export earnings capacity. Our exports of mineral commodities are also likely to decline as a result of depressed demand in the source markets.
Across the globe, countries have responded by unveiling stimulus packages to provide economic relief. Many countries are trying to spend their way out of the crises. The US government has promulgated the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. The CARES Act represents the largest economic stimulus package in history, more than doubling the stimulus Act passed in 2009 during the financial crisis. In order to stimulate the economy, the US government is making direct cash payments to individuals and families.
The centrepiece of this plan is a US$1 200 direct payment for those earning up to US$75 000 per year. For higher earners, payment amounts will phase out, ending altogether at the US$99 000 income level. Families will also receive US$500 per child. Big businesses will receive US$500 billion; small businesses will receive US$377 billion; states and local governments will get US$340 billion; and public services will get US$179,5 billion.
Africa's ability to use monetary and fiscal policies to mitigate the pandemic's economic impact is limited. In most African economies, debt servicing already absorbs 22% of revenues. The ratio of total revenues to GDP in African countries averages about 20% when compared with a global average of about 30%. This makes it difficult for most African countries to come up with comprehensive stimulus packages.
The African economy is also highly informalised, which limits the capacity of African countries to mobilise resources domestically. Most informal businesses in Africa have limited ability for their staff to work from home, compounded by issues such as power outages and high costs of data.
Most health and social protection systems in Africa are already seriously constrained. In light of these constraints, African governments have to come up with targeted and innovative responses to the crises. More importantly, there is a need to foster strong collaboration with the private sector and development partners.
A few African countries such as Rwanda, Morocco, Ghana, Mauritius and Kenya have initiated national stimulus programmes while also launching structural reforms to improve their medium-term economic outlook.
Chitambara is an economist and scholar based in Harare.