As the impact of COVID-19 levitates on emerging economies in Africa, central banks across the continent are adopting various contingency plans to salvage their economies or better still keep it alive to survive this pandemic recession.
Between the period of March and May 2020, a unison approach of slashing lending rates to cushion the macro-economy of their respective regions has been adopted by the leading economies in the continent – South Africa (3.75 percent), Nigeria (12.5 percent), Ghana (14.5 percent) Egypt (10.25 percent) Rwanda (4.5 percent) Kenya (7 percent) amongst others.
Usually, lending rates are reduced to motivate enterprises to obtain credit and loans that can meet business demands like salary payment, employment, and business expansion.
At this moment, apex banks are strategically using lower interest rates to discourage organizations that are vulnerable during feeble economic periods (recession) from adopting strict measures like a pay cut, payless leave, laying off personnel, and even liquidation.
About three months ago, West African country Ghana reduced its lending rate to 14.5 percent from 16 percent in adaptation to the Covid-19 economy, this was the first cut since January last year.
Likewise, African giants Nigeria slashed its lending rate for the first time in over one year by 100 basis points to 12.5 percent. The economy of the oil-rich nation is currently battling with falling oil prices globally and the Covid-19 pandemic.
Governor of the Central Bank of Nigeria, Godwin Emifele believes that the drop in lending rate can help to avoid a possible recession, which was hinted by the International Monetary Fund about a month ago.
Similarly, in South Africa, President Cyril Ramaphosa’s administration cut interest rates from 50 basis points to 3.75 percent which was last recorded in 1970. Cumulatively, the apex bank has cut loan rates by 225 basis points this year, has slashed rates by 100 bps at each of the last two meetings.
Nevertheless, the reserve bank has been under intense pressure from financial experts to consider measures like printing more Rand as opposed to reduction of credit rate.
South Africa’s economy gravitated into a recession in 2019 and is now dealing with ripple effects from a 2-month lockdown measure to combat Covid-19, which started on March 26th, 2020.
East African country Rwanda, lowered its lending rate to 4.5 percent from 5 percent to stimulate economic growth amid the coronavirus pandemic that has disrupted economic activity. The economy of the country is largely driven by tourism, however, closed borders and halted operations across the global aviation sector have taken a toll on the revenue stream of Rwanda.
The reality of the pandemic has also forced African countries to lower their economic growth and realization for this year as most regions are hoping for economic recovery in the fourth quarter of the year.
Definitely the restriction of movement is in favor of the public health of the countries but contrary to the economic development, as the need to revive the economy has become precedent. Perhaps this is the motivation for African leaders to consider relaxing the lockdown measures.
