[37] AUDA-NEPAD (2020), COVID-19 in Africa: Alternative to Current Confinement Approaches, http://www.nepad.org/publication/covid-19-africa-alternative-current-confinement-approaches (accessed on 18April2020). [3] AUC/OECD (2019), Africas Development Dynamics 2019: Achieving Productive Transformation, OECD Publishing, Paris/AUC, Addis Ababa, https://doi.org/10.1787/c1cd7de0-en. African Development Bank, 3 April 2020 (Adesina, 2020[9]). [22] Steel,I. and D.Phillips (2020), How tax officials in lower-income countries can respond to the coronavirus pandemic, ODI Briefing Note, https://www.odi.org/publications/16816-how-tax-officials-lower-income-countries-can-respond-coronavirus-pandemic (accessed on 8April2020). During the mitigation period, countries should focus on sustaining economic activity with support for households, firms and essential services. Stimulus should provide immediate incentives to spend, be credible and well-communicated to avoid further eroding confidence and resulting mostly in increased savings instead of consumption. 208-231, http://dx.doi.org/10.1080/09692290.2015.1125937. Note: Series are adjusted so that 100 = Q4 2004 to show percentage changes. Source: Authors' compilation based on various sources as of 4 May 2020, from national sources and IMF (https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19). Uncertainty about the development of the pandemic is large. Leather and leather product exports experienced growth of 20.9% in the quarter, earning $328m in exports from $271.3m in the year-ago period. Where recovery is anaemic, there may be a case for a longer period of expansionary fiscal policy. Many g overnments economic policy responses have been rapid and extensive. The World Bank and the IMF highlighted the need to provide debt relief to poorer countries hit by the coronavirus pandemic, and said official bilateral creditors would have to play a major role. In other countries, broader support has often been provided. In this phase, the relaxation of the measures could be gradual, e.g. Exclusive Stories, Curated Newsletters, 26 years of Archives, E-paper, and more! Bangladesh is the eighth most populous country in the world, and the most densely populated other than city states. The immediate policy challenge is to support efforts to reduce the health crisis. Although the number of COVID-19 cases and fatalities might still appear comparatively low in Africa than in other world regions, the looming health shock of COVID-19 could have disastrous impacts on the continents already strained health systems, and could quickly turn into a social and economic emergency. Knitwear exports, meanwhile, were up 9.4% to reach $5.65bn from $5.16bn, beating a target of Enact a co-ordinated global response to the COVID-19 crisis, including public debt management arrangements for the most vulnerable and indebted economies. The direct impact of COVID-19 on tax revenues, even before the revenue impact of any fiscal policy responses is considered, has the potential to be significant in the short-run across the globe. We've developed a suite of premium Outlook features for people with advanced email and calendar needs. Repeated studies have shown that many tax incentives provided by developing countries were not necessary for the investment to take place. [50] Inchauste,G. etal. Although external financing) will correctly form the main pillar of such an approach in the short term, domestic resource mobilisation, and taxation in particular, will remain as the only long-term viable source of financingnot just for health systems strengtheningbut for all public services, investment and the reconstruction of economic life. The removal of short-term measures should avoid spikes in tax liabilities. CIT rate reductions will provide the largest benefit to those businesses that are still making profits. Tax policy needs to be coordinated with other policy levers. The increased use of digital services and the need to collect more revenues could provide new impetus to efforts to reach agreement on Pillar 1 issues internationally. [45] Landais,C., E.Saez and G.Zucman (2020), A progressive European wealth tax to fund the European COVID response | VOX, CEPR Policy Portal, https://voxeu.org/article/progressive-european-wealth-tax-fund-european-covid-response (accessed on 4April2020). For developing countries, these objectives would require an increased focus on domestic resource mobilisation for health financing (see Section 5). food distribution and delivery, pharmaceuticals, garbage collection). Oil exporting countries such as Angola, Cameroon, Chad, Gabon, and Equatorial Guinea saw their debt-to-GDP ratio more than double in 2018 compared to the 2010 level, as fiscal deficits widened after the end of the commodity price boom in2014. The government is assisting companies and workers facing distress through the Unemployment Insurance Fund (UIF) and special programmes from the Industrial Development Corporation. GDP growth in Sub-Saharan Africa could fall sharply from 2.4% in 2019 to between -2.1% to -5.1% in 2020. In the medium-long term, the effective implementation of the Regional Economic Communities and the AfCFTA will be key to strengthen regional production networks and trade, and reduce the continents vulnerability to external shocks. (2018), Redistribution via VAT and cash transfers: an assessment in four low and middle income countries, IFS Working Paper W18/11, http://dx.doi.org/10.1920/wp.ifs.2018.W1811. Countries have quickly introduced fiscal, monetary and financial policies, with many adopting a sequenced approach. In the short-term, the extent of reductions in tax revenues will be seen in countries that are heavily affected by COVID-19 themselves and that impose confinement measures for longer periods, as well as those that have a greater exposure to the global economy via trade, tourism, or participation in global value chains. Egypt and Nigeria make up 60% of total remittances flowing to the continent. Once economies have recovered, countries may need to consider ways of raising revenues to restore long-term fiscal sustainability and fund public investments to strengthen the resilience of health systems, address distributional concerns and other longer-term risks, e.g. Some support measures may encourage non-compliance. Pharmaceuticals and protective equipment are imported largely from Europe andother COVID-19 affected countries. Shipments were up 21.4% to 269 MM2. , Africas government debt-to-GDP ratio would increase from 57.6% (2019) to about 85% (Table 3). Online retailing has been growing in Africa and issues like e-commerce regulation, electronic payments, and regulatory measures to protect consumer data need to be urgently addressed in the region. This is in line with a sequenced approach, where policy responses are re-assessed regularly. It was 35 per cent of Budget differentiated by type of activity, or partial, e.g. Developing and emerging countries, which have so far been less directly affected by the pandemic, and where fiscal space is lower, have been less active in fiscal policy measures. Labour market matching is costly and slow, so that the decline of unemployment can be expected to be slower than its increase, as was the case after the GFC. International cooperation will be needed to support developing countries. | The consequences of rising budget deficits could be severe given high debt levels. About 86% of total employment in Africa is informal, with up to 91% in West African countries. On the one hand, this could include support to facilitate a fair division of the economic losses in the case of a bankruptcy; on the other, support could also be provided to help setting up new businesses or diversify existing businesses in the post-crisis economy. These measures have reduced production, creating shocks to supply, and coupled with the overall health crisis they have reduced business and household demand. taxes, benefits, loan guarantees). The UN Economic Commission for Africa (ECA, 2020[12]) estimates the losses linked to the collapse of oil prices at USD65billion for the continent. For example, the step changes that digital technology in tax collection can make to the overall efficiency of tax systems and increased revenues stands out as an issue where learning between countries could be accelerated. The fiscal deficit widened from 35% reported in the comparable year-earlier period. In many instances, reducing, exempting and deferring income taxes, social security contributions, or VAT is a key channel through which support can be provided to firms and households. East Asia and the Pacific will grow by a scant 0.5%. To contain revenue impacts, it may be beneficial to target these interventions to certain businesses. While the share of Europes population above the age of 50 is 40%, it is only 10% for sub-Saharan Africa.5 However, the advantage of a younger population can be offset by the fact that many peoples immune systems are severely weakened by other conditions like malnutrition or HIV and by the more limited capacity to test, protect, treat and cure (OECD, forthcoming[20]). Indirect tax measures could further relieve pressure on liquidity and reduce subsequent solvency risk. Prior to COVID-19, in 2019, the continent had already experienced a slowdown in growth and poverty reduction overall, although with large differences between countries. [33] Bergamini,E. (2020), How COVID-19 is laying bare inequality, https://www.bruegel.org/2020/03/how-covid-19-is-laying-bare-inequality/ (accessed on 8April2020). A first wave comes from China through weakened trade channels and lower foreign direct investment (FDI) in the immediate term. Support public health services: ensure continuity of essential services through health precautions and personal protective equipment; provide daily clean water and community hand washing facilities; re-purpose some services and public buildings (e.g. With a lower level of domestic resource mobilisation compared to other world regions, African countries rely disproportionately on external financial flows, which will likely decrease during a global depression. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020, using market exchange rate weightsthe deepest global recession in decades, despite the extraordinary efforts of governments to counter the downturn This may have a severe negative effect on a countrys tax compliance culture, potentially resulting in a longer-term and more persistent decline in tax revenues. Although the number of COVID-19 cases and fatalities might still appear comparatively low in Africa than in other world regions, the looming health shock of COVID-19 could have disastrous impacts on the continents already strained health systems, and could quickly turn into a social and economic emergency. In Phase 4, attention could shift to tax policy to help restore public finances. More flexible tax debt repayment plans were also introduced in a third of countries. In the longer term, the impact on tax revenues will depend in large part on the effectiveness of policy responses taken to limit the economic impact of the crisis and on international transmission channels. This would require carefully removing some short-term measures (Section 4.1) and targeting stimulus where policies would be most effective (Section 4.2). 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