COVID-19 Recession, Elections And Debt Sustainability In Sub- Saharan Africa

The world has not witnessed any recession worse than what COVID-19 projects The world has not witnessed any recession worse than what COVID-19 projects

Since World War II, the world has not witnessed any recession worse than what COVID-19 projects; the pandemic has resulted in the contraction of large fractions of per capita income across the globe. In the case of Sub- Saharan Africa(SSA), the imminent recession to hit the region as a result of this pandemic is projected to be dire since 1970. Globally, Gross Domestic Product (GDP) is expected to contract by 5.2% and 3.2% in SSA. Already, $11 trillion is estimated to have been expended as a response to Covid-19 crisis. The World Bank Group(WBG) and International Monetary Fund(IMF), in the quest to support some governments of SSA countries to strengthen their health systems in the first 10 weeks of the surge in the Covid-19 infections, released $10 billion. Strongly driven by the motive of helping 73 IDA countries, these same institutions in April 2020, called for a debt service suspension. In response to this call, the G20 and the Paris club announced a time-bound (from May 1st to the end of 2020) debt suspension provision to countries that request forbearance. The main goal of the DSSI is to allow poor countries channel their resources to fighting the pandemic and safeguarding lives and livelihoods. This initiative came as a great relief because, the revenue generation capacity of emerging markets and developing economies has been relatively low amidst the infrastructure and social spending chasm to meet developmental needs.

As part of the emerging markets and developing economies, Sub- Saharan Africa experiences huge revenue generation shortfall largely because of the informal nature of its economies. The informal economy is the part of the economy which is not regulated nor taxed. This revenue generation shortfall is further exacerbated by the impact of the COVID-19 counter measures such as lockdowns and social distancing adopted to curtail the spread of virus. In effect, the region has experienced a deep economic downturn which is expected to shift the socio-economic gains backward to about 10 years. This indicates that the socio-economic level of the SSA is almost reverting to the levels of 2010. Consequently, about 26 -39 million people will be thrust into extreme poverty due to the rise in unemployment, job losses as a result of low production, disrupted agricultural sector supply chain, as well as constraint in key services and industrial activities. Despite these dips, certain socio-economic activities continue unabated and this includes statutory necessities such as elections.

Undeniably, the year 2020 was anticipated to be a busy year in the context of economic growth and political euphoria in SSA. It is a year in which 18 countries were expected to hold their elections starting from Cameroun through to Ghana in December. Most SSA countries vivaciously and impatiently waited to express opinions on the performance of incumbent Governments through elections. Seeking to impress electorates, some governments in most cases, embark on unplanned infrastructural projects as well as channeling of public funds into political party activities. The opportunity cost in this instance is the number of people who will be plunged into poverty, increasing public sector debts and halting essential developments. During electioneering periods, most Sub-Saharan African countries spend huge sums of money which has the tendency of widening their budget deficits. Though Covid-19 has brought about a recession and demands unplanned expenditure to curb the spread, SSA which houses about one third of the world's poor, bad infrastructure and high debts, has been seen making colossal expenditures ahead of and during their elections. In Burundi, the cost of their previous elections was $60 million but in 2020, salaries of public servants totaling $33 million were withheld before elections could take place. Malawi's Electoral Commission also spent $60 million on elections while Tanzania projects about $16 billion in its upcoming elections in October 2020 (BBC Africa – The Breakdown 2020).

Despite the debt service suspension initiative, the regional bloc faces a financing need of $44 billion in 2020. Further analysis of the pandemic's effect on the fortunes of SSA by the World Bank suggests that, the region is likely to lose between $37 billion and $79 billion in output; this output includes but not limited to trade and value chain disruption, reduced foreign financing flows form remittances, tourism, foreign direct investment, foreign aid, combined with capital flight, 2.6% to 7% in agriculture trade (export and import) and direct impacts on health systems. Coupled with these gloomy economic projections is the already high debt levels and low revenue generation capacities that existed in SSA before the pandemic. In countries such as Ghana, there has been revenue shortfall forecast of about 18 to 20 percent while public expenditure is projected to go up by over 20 percent in 2020. This sharp economic slump and increasing election expenditure, leaves one to wonder if the region can sustain its debt levels and have resilient post pandemic economic recovery.

Most assuredly, institutions tasked to ensure good public financial management bring a sigh of relief in these instances. However, they ought to be resourced to enforce to the letter the provisions stipulated in the Public Financial Management and Fiscal Responsibility Acts. Strengthening PFM systems would ensure effective and efficient revenue collection and allocation; especially during this period of unprecedented economic slowdown in which governments are liable to flouting fiscal responsibility rules. Fiscal Responsibility Act, 2018(Act 982) of Ghana prohibits the budget deficit target beyond 5% of GDP, however this is likely to be defied in the next four years due to the impact of Covid-19. The Finance Minister, during his presentation of the mid-year budget, indicated that the government had opted to suspend the fiscal rules and targets for the 2020 fiscal year. Consequently, the fiscal deficit for 2020 has been revised from 4.7 percent to 11.4 percent of GDP."According to our revised fiscal framework, the economy is only likely to return to the five percent fiscal deficit threshold set in the Fiscal Responsibility Law no sooner than 2024" (Ken Ofori –Atta, Minister of Finance Ghana).Good PFM systems that are not compromised pre and post elections in SSA countries could cushion efforts to curtail political ecstasy of making huge investments into areas which will inure to political expediency other than bolster the required economic growth. Furthermore, Governments should promote accountability and transparency in its expenditure by adhering to procurement laws. Undoubtedly, there would be a resilient post pandemic economic recovery if the continent which has financing need of $44 billion put in a concerted effort towards accountable and transparent spending. All things being equal, the fiscal envelope of SSA is projected to expand to about 3 - 5 percent of GDP in the next five years if there is an improvement in its tax systems. Furthermore, if public assets are managed properly, an estimated 3% of additional GDP revenue could be gained in a year in some Sub- Saharan African countries.

The World Health Organization projects that, the Covid-19 pandemic would linger on for quite some time, hence, African governments should institute a digital tax collection system to enhance revenue generation. Most African countries should revamp its revenue generation abilities by training its revenue collection agencies on how to use digital systems to collect revenue. To curb the menace of political interest competing with the core issues that affect the ordinary citizen, full disclosure of party source of funding should be published. This will ensure that, monies meant for inclusive development and benefits are not channeled into the hands of few persons.

AuthorEunice AsieduMA Economic Policy [email protected]

Source: By Eunice Asiedu