East African Economies Show Resilience Amid Covid, AfDB Says

(Bloomberg) -- Thirteen East African economies are projected to collectively expand by 4.1% in 2021 from 0.4% last year, supported by a global recovery, according to an African Development Bank report.

East Africa is the only region on the continent to have avoided a recession in 2020, thanks to agriculture, sustained public spending on large infrastructure projects, and increased regional economic integration, according to an AfDB report published on Thursday. The lender reviewed the performance of 13 economies: Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Sudan, Tanzania, and Uganda. 

All 13 economies are projected to record growth in 2021, with Kenya expected to post the highest at 6.3%. Expansion in the region is expected to accelerate to 4.9% in 2022 and 5.6% the following year on account of rising commodity prices and growing economic diversification, according to the report. 

IMF’s African GDP, CPI, Current Account Forecasts (Table)

The slow roll out of Covid-19 vaccines and risks of spikes in infections could dampen that outlook, according to the study. The coronavirus pandemic could also hold back progress on slashing poverty in the region, after 12.3 million people, or 3.4% of the 2019 population, slid into extreme poverty, it said. 

“The pandemic has had sharper impacts on the poor, with the number of people falling below the poverty line projected to increase,” AfDB said. “Covid-related shocks have increased poverty in the region, with the share of people living in extreme poverty rising to 35% in 2021, or 134.3 million human beings.” 

Wider Deficits

While the sustained spending on development projects kept output ticking, the flip side is that East African nations’ fiscal deficits widened considerably in 2020. That was due to the additional burden of responding to the pandemic, amid plunging domestic revenue because of containment measures and global supply-chain disruptions. Still East Africa still managed to keep financing gaps lower than other regions of the continent except for Central Africa. Current-account deficits widened as exports fell during the pandemic. 

“To stabilize public debt, countries must deal with debt related to state enterprises and contingent liabilities, clear domestic arrears, and improve debt governance and transparency,” the pan-African lender said. “In addition, increased non-debt equity or donor-funded capital, along with innovative financing instruments and risk-sharing tools, must be explored to combine funding for East Africa’s development needs.”

East African economies are experiencing a progressive change in the composition of their gross domestic product from predominantly agriculture to services, but the structural transformation has been slow, AfDB said.

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