The enforcement of curfews and partial or complete lockdowns to flatten the Covid-19 infection curve will contribute to the African economy’s inevitable contraction this year. The debt burden will worsen to risk a wave of forced debt restructuring unless agreements can be reached on debt holidays and waivers. There are also growing concerns that a mere freeze in debt servicing will not be adequate, as several sovereign credit principal repayments are due over the 2020-22 period, and rolling over such a large amount of credit would be a challenge in a difficult global financial environment.
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The slowdown in economic growth in Nigeria and Egypt and a deep economic contraction in South Africa alone will shave off 1 ppt from Africa’s economic growth this year. Together these three economies account for just under 60% of total African economic output, and all three will see a significant weakening in economic growth this year. This slowdown in economic activity will permeate through the continent as these countries are salient drivers behind economic growth in their respective regions.
The dual Covid-19 and commodity price slump shocks will permeate across Africa. Our vulnerability index suggests that the direct trade hit associated with a Chinese demand shock may be most acutely felt by Angola, Gabon, Ethiopia, Rwanda, Kenya, and Cameroon. Notwithstanding a sell-off in African sovereign credit, we do not consider the severity of the downturn as completely priced in as yet.