A report from the Fifth Trade and Trade Facilitation Sub-Committee meeting of COMESA which was held virtually has indicated that the region’s average growth slowed down in 2019 to 5.2% from 6.0% in 2018 and is projected to decrease to 0.6% in 2020.
The slowdown in growth was experienced in most COMESA member countries except Egypt, Ethiopia, Malawi, Rwanda and Seychelles that registered improved economic growth in 2019 compared to 2018. The impressive growth of above 5% in both years in these countries, reflected among others, improving growth fundamentals, with a gradual shift from private consumption toward investment and exports.
COMESA Region experienced a slowdown in growth in 2019 as compared to 2018. This is largely attributed to lower commodity prices over the period. The region is currently going through an unprecedented economic and health crisis following the spread of COVID-19 pandemic to the region since the beginning of 2020.
The contraction is attributed to among others: the impact of containment measures that includes quarantine, lockdowns, travel restrictions and border closures, among others.
Regarding Monetary Policy and Exchange Rate developments, the reports states that monetary policy stance varied depending on the extent to which countries are exposed to domestic and external shock. Generally, Central Banks in the region pursued an accommondative monetary policy stance, for economies where inflation pressures were muted.
However, in 2020 the banks face new challenges posed by COVID-19 pandemic including a shift of priority to crisis management objectives instead of strictly price stability.
In order to overcome these challenges, a number of Central Banks in the region have already instituted measures in response to COVID-19 pandemic, with most of them loosening monetary policy, allowing the exchange rate to depreciate and at times conducting foreign exchange interventions to smoothen exchange rate fluctuations.
At the same time, economic disruptions brought about by COVID-19 have resulted in tightening of global financing conditions, unprecedented capital outflow and sharp decline in remittances and tourism receipts.
The report further states that although fiscal policy is key in addressing the current challenges posed by COVID-19 pandemic, monetary and exchange rate policy can also play an important role in dampening the economic shock.
Governments in the region have instituted a number of fiscal measures geared towards containing the COVID-19 pandemic, including provision of health services and extended unprecedented support to households, firms, and financial markets.
The report also highlight that region’s average government debt as a share of GDP was 50.5% in 2019 as compared to 50.9% in 2018. However, this is projected to increase to 54% in 2020 due mainly to COVID-19 pandemic.
The report therefore recommends that the immediate challenge for most countries in the region will be stopping the COVID-19 pandemic and countries should double their efforts to sustain public health gains including contact tracing, quarantine and isolation, treatment and stopping the spread.
The meeting also recommended that Member countries should use macroeconomic policies to speed up recovery that should include fiscal, monetary and more flexible exchange rates that would permit exchange rate depreciation. Fiscal stimulus in the short run should target public health, crisis response and income support to the most vulnerable.
In the medium term, the meeting recommended for structural transformation and economic diversification of individual economies in the region because COVID-19 has clearly demonstrated that with disrupted trade channels, local manufacturers have been able to rise to the occasion. There is therefore needed to sustain emerging pharmaceutical and medical supply industries in a post Covid-19 era.