North African growth is expected to quickly return to pre-pandemic levels, but challenges remain


[ad_1]

North African economies experienced three shocks in 2020: the Covid-19 pandemic, a collapse in oil prices and a sharp drop in tourism.

In addition to the impact of strong contractions among the region’s main European trading partners, real gross domestic product (GDP) growth was negative, at -1.1%, in 2020, reports the African Development Bank (AfDB) .

The AfDB notes, however, that, depending on global risks and uncertainties, the region is expected to quickly recover to pre-pandemic levels. The development finance institution (DFI) forecasts GDP growth of around 4% this year and 6% in 2022.

“The speed of the recovery should partly come from the rebound in oil prices (Algeria, Libya) and tourism (Egypt, Morocco, Tunisia), better production and distribution of vaccines and a strong recovery among partners European sales representatives in the region, ”notes the DFI. in its report “Economic Outlook in North Africa 2021”.

Nevertheless, the region still faces a number of challenges.

The AfDB stresses that Covid-19 has increased the external vulnerabilities of North African countries and considerably reduced their external room for maneuver. The crisis has also significantly eroded fiscal space.

In addition, North African countries have accumulated foreign debt very quickly since 2010.

“Egypt, Morocco and Tunisia have increasingly relied on sovereign Eurobond markets to meet their external financing needs. has shorter debt maturities, higher interest rates and a higher risk of a foreign currency crisis compared to the lending terms of official Paris Club creditors, ”the report said.

Meanwhile, excessive domestic borrowing can lead to money creation and thus increased inflationary pressures, crowding out private investment, according to the AfDB.

Algeria, Egypt, Morocco and Tunisia are also faced with the additional risk of contingent liabilities incurred by state enterprises (SOEs), ”he adds.

“For example, before Covid, these contingent liabilities were estimated at 13% of GDP in Egypt and 16% in Morocco.

“If the pandemic continues into 2022 and beyond, some countries are likely to face liquidity issues for servicing debt payments. There is no international mechanism to manage the debt of lower middle income countries, although the AfDB has proposed one for African countries, which would help avoid liquidity crises, ”he said.

The DFI recommended a number of short, medium and long term actions to help the region.

In the short term, he recommends that North African countries limit the spread of the virus; develop the capacity for debt sustainability analysis; prepare debt plans in case the pandemic lasts longer and hits harder; assess the full stock of real sovereign debt and contingent liabilities; strengthen coordination between fiscal, monetary and exchange rate policies to monitor the direction, speed and magnitude of capital flows and their effects; and conduct public expenditure reviews to protect investment projects that are necessary to restore economic growth.

For the medium term, the AfDB suggests that countries invest in digitization; provide support to small and medium-sized enterprises; strengthen the mobilization of national resources; deepen national bond markets; monitor the contingent liabilities of governments; and restructure public enterprises and effectively use debt to finance productive investments.

In the long term, countries should promote economic and export diversification; invest in the public goods needed to reduce regional disparities and foster inclusive growth; and deepen regional integration in the context of the African Continental Free Trade Area Agreement.

[ad_2]

About Rodney Fletcher

Check Also

IRS Warns: Hundreds of Crypto Criminal Tax Cases Ahead; Hiring 300 special agents means more to follow | BakerHotelier

Take away food : The 2022 IRS Annual Criminal Investigation Report highlights significant lawsuits and …

Leave a Reply

Your email address will not be published.