So far, the economy has posted a fairly good resilience to the pandemic shock. Although economic growth slowed sharply in 2020, it nonetheless remained in positive territory. Above all, the economy is expected to rebound strongly this year, buoyed by domestic demand and easing political tensions after a busy electoral calendar. The country’s debt situation is also not as alarming compared to the other African countries. Even so, the sharp deterioration in public finances in 2020 calls for fiscal consolidation, which could prove to be difficult without a sustainable increase in fiscal revenue. This could weigh on the growth prospects of an economy that is increasingly dependent on public investment. 

Nigeria’s economy contracted by 1.8% in 2020 due to the pandemic and the downturn in oil prices. The prospects of a rebound are slim, with growth expected at 2.5% in 2021 according to the IMF. The lack of visibility over the evolution of exchange rate regime is one of the main factors curbing growth. The Finance Minister recently declared that the government was going to use the Nafex rate, the market’s benchmark exchange rate, implying a 7.5% devaluation of the official exchange rate. The Governor of the Central Bank denied this announcement, but pressure is growing. Unifying various exchange rates is one of the conditions for unlocking financial aid, which would ease the external liquidity pressures generated by the drop-off in oil exports. Foreign reserves held steady at USD 35 bn in 2020, but thanks to a considerable tightening of foreign-currency allocations to the private sector. Moreover, current account is expected to remain in deficit in 2021, despite the upturn in oil prices. A significant currency adjustment will also be necessary to address external imbalances. There is still a spread of nearly 30% between the official and parallel exchange rates, despite two devaluations in 2020.

With real GDP contracting by 8.5% in 2020, Tunisia was one of the region’s most severely hit economies. The prospects of a recovery are highly uncertain. The economy is threatened by the resurgence of the pandemic, but the government no longer has the manoeuvring room that it had in 2020. The budget deficit and public debt have soared to alarming levels, which calls for a difficult consolidation of public finances. Although FX reserves have been stable, the country’s external vulnerability is growing. The pandemic’s shock has aggravated a structural deterioration in fundamentals. This could have lasting consequences.

Despite rapid support measures, the economy will not escape a severe recession this year. With the abrupt halting of tourism activity, the drop-off in exports to Europe and the collapse of domestic demand in Q2, GDP will contract by about 6%. Although there are high hopes that a good agricultural harvest will fuel a rebound in 2021, the recovery of non-agricultural activities will take time. In contrast, Morocco’s macroeconomic stability does not seem to be threatened. But growing pressure on public finances leaves the authorities very little manoeuvring room.

According to the government, the Covid-19 crisis will push the budget deficit up to 11.4% of GDP this year, from the 4.7% initially expected. More importantly, medium-term forecasts do not predict a return of the deficit to below 5% of GDP before 2024. This is a worrying trend. Covering financing requirements will prove to be challenging. With the bulk of external financing having already materialized, the government will have to turn to the local debt market. However, conditions here are onerous, resulting in interest costs rising to a very high level (50% of government revenue in 2020). Another option would be to make use of monetary financing. The central bank already has an asset purchase programme in place (2.6% of GDP). Increasing this would carry risks for a country vulnerable to portfolio investment flows. Additional uncertainty comes in the form of the general elections to be held at the end of 2020. In the event of a loss of confidence, the cedi could come under renewed pressure, weakening the public finances a little more. Around half of debt is denominated in foreign currency. We estimate that debt will climb to 77.5% of GDP in 2021, from 62.4% in 2019.

Although the pandemic is well contained from a health perspective, the Covid-19 crisis combined with the downturn in oil prices will have severe economic consequences. With no real fiscal leeway, the government has implemented a very modest economic stimulus plan, while massive capital outflows and the collapse of oil exports have fuelled the rapid erosion of foreign reserves, bringing the naira under pressure. The deterioration in public and external accounts despite support from donor funds hampers any prospects of a recovery. Just four years after the last recession, real GDP is expected to contract significantly again in 2020. Without an upturn in oil prices, the rebound will be mild in 2021.

The Moroccan economy will see significant consequences from the coronavirus pandemic. Tourism has been at a standstill since March and will remain so until May at the earliest. The automotive sector and remittances from the Moroccan diaspora will also be hit by the crisis in Europe. However, and provided that the situation improves in the second half of the year, Morocco should be able to avoid recession. Macroeconomic fundamentals are solid and the country will benefit from a substantial fall in oil imports. Moreover, the authorities have reacted swiftly to dampen the shock.  

Tourism is the main transmission channel of the Covid-19 pandemic to the Moroccan economy. Activity has been at a standstill since March and will remain so until May, at least. The losses will be significant in a sector that contributes to more than 8% of GDP, which is the highest level in the region. On a more positive note, two-thirds of the tourist season comes from June onwards, which might coincide with the easing of restrictions on travel in some countries even if the recovery of the activity would be gradual. The slump in tourism activity will weigh on growth and external accounts. The sector accounts for 15% of current account receipts. However, external stability does not look under threat. Forex reserves are comfortable and external debt is moderate. The fall in global oil prices should also help to keep current account deficit below 5% of GDP. Lastly, Morocco could draw on the IMF’s Precautionary and Liquidity Line if necessary.