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By Cyriaque Junior MEDJO MEKOK (Download Pdf Version)

INTRODUCTION

For more than a year, the world has been facing a phenomenon that has literally redefined habits within communities. This phenomenon is the global Corona virus pandemic, identified in December 2019 in China, in the city of Wuhan. Declared a pandemic by the World Health Organisation (WHO), it has multiplied cases of contamination and death throughout the world. As no country is self-sufficient, the Corona virus pandemic has forced all nations to adopt measures to protect their populations and territories. Since mid-January 2021, the WHO has authorised the release of Covid19 vaccines in the world in general and in Africa in particular. Astra Zeneca, Moderna, Pfizer/BioNTech, Johnson & Johnson and others are now being used to combat the disease. Even if their effectiveness is established at 66% in general against 85% for the severe forms, their ineffectiveness against the more contagious South African variant represents a disadvantage for their marketing in Africa. In order to better understand our subject, we will take stock of the resurgence of this crisis in the economies of the CEMAC countries (I), state its harmful effects on their economies (II) and provide prospects and solutions for economic recovery (III).

Status and Consequences of the Resurgence of the Coronavirus in the CEMAC Zone

COVID-19 appeared in the last quarter of 2019 in Wuhan, Central China, with unusual cases of pneumopathy progressing in the first quarter of 2020, and in view of its strong spread throughout the world, it has been reclassified as a pandemic by the World Health Organisation (WHO). After the measures taken to slow down its spread by several countries in the world, notably containment, the adoption of barrier measures, the closure of borders, airports, etc., these measures were relaxed in July 2020, even though the WHO was already worried about a new wave of contamination.

As of March22, 2020, all six countries in the sub-region are affected by this crisis, and to prevent the spread of COVID-19 in the various countries and to ensure effective care for those already infected, all the Governments in the sub-region have taken emergency measures, most of which have involved closing borders, quarantining travellers from countries at risk, confining populations and intensifying awareness and prevention campaigns through simple hygiene measures to be observed by all.

Thus, more than a year after the start of the pandemic, estimates by the International Labour Organisation indicate a significant increase in unemployment and underemployment in the wake of the virus. Based on different scenarios for the impact of COVID-19 on global GDP growth, preliminary ILO estimates show an increase in global unemployment ranging from 5.3 million in the lowest case, to 24.7 million in the worst case, starting from a baseline of 188 million in 2020. Cameroon is not emerging unscathed from this worrying health situation because the psychosis of March 2020, which had already dissipated, is once again haunting the minds of Cameroonians because of the meteoric rise in positive cases of COVID-19. The proof is that in just one week, Cameroon has recorded 1965 positive cases of COVID-19, 28 deaths and the bed occupancy rate has risen from 5% to 7.23%, an increase of 2.23%. For in the evening of March 2, 2021, the epidemiological situation drawn up by the Minister of Public Health indicated that Cameroon had 33,749 positive cases; 31,362 cured; 523 deaths; 2,200 active cases of which 158 were in emergency services and 38 on oxygen, i.e. 93% of the cure rate, 1.5% of the case fatality rate, 1.6% of the severity rate and 5% of the bed occupancy rate.

From an economic point of view, COVID-19 has relatively affected the economies of the CEMAC sub-region in several areas:

  • Real sector: growth fell from 3.3% (-0.2% for the oil sector and 4.2% for the non-oil sector) to -1.6% (-15.1% for the oil sector and 1.1% for the non-oil sector). The fall in the price per barrel is reflected in a decline in oil (-6.9 million tonnes) and gas (-945.4 million metric tonnes) production. The non-oil sector is more affected than in the case of a temporary crisis, with a loss of 2.4 GDP points, and there would be more business failures and job losses.
  • Public finances: the overall budget balance has widened to -6.6% of GDP, compared to a surplus of 0.9% of GDP in the initial baseline scenario. This deterioration in public finances is the result of both a decline in budgetary revenues (that is, -4.7 points of GDP) and a relatively higher increase in public spending. The loss of oil revenue is estimated at CFAF 2 653.7 billion (about US$4.43 billion). Non-oil revenues declined more significantly (-1.2% of GDP). Given the strong projected increase in spending on health and support to the sectors most affected by the pandemic, budgetary expenditure is slightly up by 2.9 points of GDP. Still due to the weakness of the budgetary reserves of the CEMAC countries, the additional budgetary deficits (+6.6% of GDP) will be financed mainly by recourse to monetary and banking resources, given the difficulties that the countries have had in mobilising external resources, with potential donor countries themselves being hit by the crisis.
  • External sector: the current external deficit, including public transfers, widened to 10.3% of GDP, compared to -1.7% of GDP in the initial baseline scenario, mainly due to the deterioration in the terms of trade by 49.0%, the drop in exports (-11.5% of GDP) and the slight increase in imports. As a result, the overall balance of payments would deteriorate further, resulting in a sharp decline in reserve assets from 3.98 months of imports of goods and services in the initial baseline scenario to 2.66 months in the pessimistic scenario. Moreover, the decline in export and budgetary revenues significantly impacts the ability to service external debt. The debt service ratio in relation to budgetary revenue is 26.7%, compared with 17.3% in the initial baseline scenario.
  • Monetary situation: it deteriorated further through the decline in net external assets, credits to the economy and the money supply. Only net claims on governments were forecast to increase significantly. The increase in net claims on governments would result from the use of public deposits at the Central Bank and primary banks, as well as the issuance of public securities, subscribed by the banks. As the banks did not voluntarily subscribe to the securities issued by the States, there was an accumulation of public payment arrears. This situation has had a systemic impact on financial stability.  The currency’s external cover ratio fell from 71.6% projected in the initial baseline scenario to 52.7% in the pessimistic scenario.
  • Financial stability: the cash flow difficulties of governments and the greater difficulties of companies affected by the COVID-19 crisis have further weakened financial stability, resulting in major bank failures.

With most economies in difficulty, the response of countries is therefore becoming increasingly essential, not only to revive their economies, but also to further curb the spread of Covid19.

Outline of Solutions For CEMAC Countries in the Face of the Resurgence of the Coronavirus Crisis

One of the main sources of uncertainty currently surrounding the forecast for the end of the COVID-19 crisis is the duration of the pandemic and the reduction of its spread within the limits of the current health systems. In this perspective, countries should urgently review their public spending priorities to strengthen epidemic prevention and care. The aim is to reduce the mortality rate of the pandemic as well as the adverse economic effects of this health crisis.  In view of the above-mentioned consequences, the response of the CEMAC countries should take into account several factors.

  • Measures to mitigate the macro-economic effects of the COVID-19 crisis:
    • The adoption of the Amending Finance Laws 2020-2021 to align public finance management with updated and realistic budget revenue forecasts and to strengthen the means to fight the spread of the COVID pandemic while guaranteeing debt service. Similarly, given the risks that a delay in adjusting public expenditure, or even a failure to adjust such expenditure, poses to the external stability of the currency and to financial stability, countries should immediately consider rationalising their expenditure and intensify efforts to mobilise substantial support from the international community to deal with the effects of the COVID-19 crisis. These financial resources would include the use of the emergency facilities put in place by the World Bank, the IMF and the ADB to assist states whose economies are weakened by the COVID-19 crisis.
    • The implementation of a package of support measures for companies hit by the COVID-19 crisis. These support measures could be both fiscal (through tax relief and moratorium allocations for the payment of taxes and certain social charges) and budgetary (through subsidies to companies through a support fund designed to avoid their bankruptcy and closure, job losses and the risks that these companies could pose to financial stability).
    • Engage in negotiations with key bilateral and multilateral partners to reschedule current external debt maturities in order to ease the magnitude of fiscal adjustments.
  • Measures to ensure monetary and financial system stability:
    • Renewal at maturity of the current financial programmes supported by the IMF and the World Bank, to take into account the new needs for fiscal adjustment and reforms imposed by the macroeconomic consequences of the COVID-19 crisis.
    • Strengthened management of bank liquidity by the Central Bank to ensure the liquidity of banks in line with the objectives of external stability of the currency and financial stability. From this perspective and as necessary, liquidity could be injected through bank refinancing operations and the reduction of reserve requirements. The Central Bank can also broaden and relax the conditions of eligibility of public and private securities for its refinancing operations.
    • The establishment, under the supervision of the BEAC and the COBAC, of a framework for monitoring the relative quality of the banks’ credit portfolio. This framework will make it possible to organise in a concerted manner the reorganisation of bank credit schedules for companies affected by the COVID-19 crisis as well as the reduction of the volume of outstanding debts resulting from the accumulation of payment arrears by the States towards their commercial suppliers.
  • Measures to strengthen the medium-term resilience of CEMAC countries to future crises:
    • The adoption of three-year multilateral convergence plans centred on the systematic constitution by States of budgetary margins resulting from alignment with the Community standard relating to the reference budget balance. To this end, the CEMAC Commission must finalise, in consultation with all the parties concerned, the establishment of the Multilateral Fund for the management of financial savings from oil revenues.
    • Accelerating actions aimed at catching up with the CEMAC countries in improving the business climate and diversifying the productive base. The urgent establishment of the Business Climate Observatory, the strengthening of communication and digital exchanges as well as the structural reforms included in the PREF-CEMAC are the first actions to be undertaken in this sense.

CONCLUSION

Between March and July 2020, the adoption of restrictive measures and containment were intended, among other things, to slow the spread of the Corona virus. Unfortunately, the second wave of infection has arrived and has led to a global economic standstill. While medical science is to be commended for the vaccines that have been administered since mid-January in almost every country in the world, the economic recovery despite the partial containment and the adoption of sanitary measures is more than ever at the heart of the debate. Africa in general, and Central Africa in particular, must therefore be able to use medicine and research to find solutions to this problem.

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