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Fighting COVID-19 in Africa’s most vulnerable states needs grants not loans

1 Mins read

As the continent struggles to stop the spread of the disease, African countries have imposed various forms of lockdowns that include restricting movement and closing borders.

This results pretty much in economic shutdown which in turn leads to at least five devastating results:

  • Export of commodities, on which most poor African countries rely on, stops.
  • Tourism and foreign exchange earnings and reserves dry up.
  • Private sector more or less ceases to operate.
  • Much-needed resources for health expenditure are squeezed.
  • Millions of households that depend on daily wages face starvation.

Poor African countries do not have the means to launch the massive stimulus packages seen in rich economies.

Lacking the financial resources of rich countries such as Canada, the US, Germany or the UK, which have all launched massive stimulus programs amounting to more than $5tn, low-income African countries look to donors for help.

Already we saw the IMF taking the lead. On 3 April, the IMF’s Managing Director, Kristalina Georgieva, announced that nearly 80 countries had already requested assistance and that the fund is ready to deploy its $1tn in lending capacity.

So far, four African countries, namely Rwanda, Madagascar, Togo, and Sierra Leone, have received IMF loans to mitigate the impact of COVID-19.

In Madagascar, the IMF approved a loan of $165.9m.

The crisis is having a severe impact on Madagascar’s economy, especially in the sectors the country relies on most. Tourism is facing a dramatic decline, while mining, manufacturing, and trade are barely functional.

The most vulnerable among Madagascar’s population of 25 million needs donations of staple foods. The private sector needs support, and the financial sector urgently needs liquidity to preserve stability.

As is the case for Rwanda, the IMF sees its support of Madagascar as being no more than a catalyst for additional donor financing.

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