Monetary policy and financial stability in Africa during COVID-19.

Phyllis Papadavid and Dirk Willem te Velde, May 2020


The cost of COVID-19 for Africa is considerable. The IMF, the World Bank, UNECA and ODI all forecast economic costs of at least 5% of GDP in 2020. More than 20 million jobs will be lost. Foreign portfolio flows are fast receding; remittances and FDI are slowing considerably. African countries will not only see a contraction in economic activity but also resurgence in financial instability, driven in part by the need for (and in some cases the shortfall in) liquidity and monetary stimulus.

An EABC survey suggests major reduction in cash flow in East Africa varying by sector: tourism (92%), logistics (75%), retail and real estate (60%), financial (50%) and other sectors (25–50%). In April 2020, in Kenya, the seven largest banks restructured loans worth KSh 176 billion or 6.2% of the industry’s total gross loan book, including tourism (31%), real estate (17.2%), building and construction (17%) and trade (12.4%). The share of non-performing loans (NPLs) in the total loan book rose to a high 12.7% in February 2020 from 12% in December 2019. Defaults are growing in the manufacturing, energy and household sectors. The NPL ratio is above a five-year average of 8.2%, meaning that banks are cautious of new lending.

Photo: Workers at the Akuapem Rural Bank in Mamfe, Ghana. Jonathan Ernst / World Bank Licence: (CC BY-NC-ND 2.0)