Covid, Africa and the IMF

 Covid, Africa and the IMF 

At its peak in 2015 Namibia’s GDP/capita, the most widely used measure of our standard of living, was US 6,275, per person and public debt was a mere 32 % of GDP. By 2021 public debt will be 69% of GDP, which is at about the average of sub-Saharan Africa. GDP/capita in 2019 in US dollars was $5766 and  is projected to decrease by approximately 7%  in 2020 to about US$ 5350. In other words by the end of the year you will be 15% poorer in US dollars than you were in 2015 and that was without taking into account the effects of inflation.   

If all of that is depressing and making you conclude that the economic future in Namibia is bleak and if you want to feel better about Namibia, at least for a day or two,  then you should compare our situation to that of oil rich Angola, copper rich Zambia and diamond, gold, platinum and chromium rich Zimbabwe. Once you do this you will feel much better about Namibia’s economic situation but it should become clear that we are not far behind our neighbors 

Angola had a debt/GDP ratio of 111% before Covid- 19. Zambia with persistent fiscal deficits increased general government debt to 88% of GDP in 2019, up from 32% in 2014. All this was before Covid and expectations are that debt will rise in Zambia to around 100% GDP in 2021. In Zimbabwe the  Zimbabwe Economic Policy Analysis and Research Unit has recently said that “The public sector debt to GDP ratio including legacy debt and farmers’ compensation jumps from about 51,8% estimated for 2019 to a projection of about 101,6% in 2020.  

The IMF claims that it has been very generous with concessional loans to those member countries which have had to lock-down their economies to combat the virus. The IMF has created a US$50 billion facility to help countries suffering from the economic effects of Covid 19.  But the generosity does not extend to those that are already virtually bankrupt. Zambia has been told that with a debt/GDP ratio of 100% that it should not bother asking. Zimbabwe with similar levels of debt, 1000% inflation (yet again) and significant debt arrears to other banks has no-one willing to give it loans.  

Patrick Imam, the IMF country representative in Zimbabwe, was quoted as saying that “the $50 billion facility provides grants to cover upcoming debt services to the IMF. Now given that Zimbabwe’s debt to the IMF is zero, there is no debt service to pay, and hence the facility would not be of any use.” He went on to say IMF offered funds to member countries severely impacted by Covid-19, such as the Rapid Credit Facility, were currently not available to any country that was in debt distress or had arrears to international financial institutions (IFIs). “Zimbabwe still has arrears to multilateral development institutions such as the World Bank, AfDB, and the European Development Bank,” Imam explained. “IMF rules do not permit us to provide financial support in these circumstances. Thus, before becoming eligible for financial support from the IMF, Zimbabwe will need to clear these arrears.” 

 Before the Covid 19 outbreak the African Development Bank had written “ More than 60% of the (Zimbabwe) population falls below the poverty line, while income inequality remains high. Employment opportunities continue to dwindle. About 2 million people in the rural areas were food insecure in April–June 2019—expected to rise to 5.5 million in January–March 2020—with 2.0 million more affected in urban areas” 

The IMF has this week approved South Africa's request for a US$4.3 billion (R70 billion) loan to overcome the COVID-19 pandemic. The request for emergency financial support is under the Rapid Financing Instrument and will help the country to mitigate the adverse social and economic impact of the pandemic. South Africa has also taken loans from the New Development Bank and the African Development Bank of $1 billion (R17.3 billion) and R5 billion respectively. 

In Namibia the government has never taken any loans from the IMF, because  it was unnecessary and the normal terms and conditions that are imposed by the IMF are generally considered so iopposed to the country’s ideology. Namibianormally  takes its loans from other institutions such as the African Development Bank and it is not in arrears to other IFIs it could get a loan from the IMF . Namibia almost the day after South Africa's approval has now sought a loan from the IMF of N$4.5 billion for the Covid 19 pandemic and Mr Shiimi, the Minister of Finance would not have announced it if it were not a foregone conclusion.  

Many virologists are now warning that a second and much worse outbreak of Covid 19 can be expected in the northern winter beginning in November. This means further lockdowns in the northern hemisphere  and therefore we can expect the Covid economic crisis to continue well into 2021 and 2022 and possibly even longer. Given that the US is being run by an administration of the most limited ability and intellect and Covid 19 is ravaging that country in large part because of the policy failures of the administration, international investors have turned away from the US dollar as a traditional safe haven and moved to gold which is now trading close to US$2000 per ounce.  

Assuming the virologists are correct Namibia, along with rest of Africa, can now expect at least two years of more economic decline and increased public debt.  By that time if we continue to raise debt as we have in the last year Namibia, like all of its neighbors will be in a major economic crisis. At that point we will either have to go to the IMF for a loan because the other international banks will no longer continue to accept such high risks of further loans or, far worse, we will follow the disastrous route followed by the Mugabe government in Zimbabwe and we will decouple from the rand and print nollars (Namibian dollars). While Mugabe’s economic policy created hyperinflation, sent millions of Namibians into economic exile and much of the remainder into poverty and hunger it did enrich some party officials who had access to foreign exchange at the official and black market rates. As a result this disastrous policy of printing money cannot be entirely discounted as an option the government might take in Namibia.  

These are the views of Professor Roman Grynberg and Mr Lukas Kumonika and not  necessarily those of UNAM where they are employed.