We study the impact of COVID-19 and oil price crises on African economies.
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We use natural experiment framework.
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We document that the joint shock entails higher forecasted GDP growth loss.
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We identify six promising recovery policies.
Abstract
Oil-dependent countries face a twin-shock: in addition to the COVID-19 outbreak, they are facing an oil price collapse. In this paper, we study the impact of this dual shock on the forecasted GDP growth in Africa using the COVID-19 outbreak as a natural experiment. We use the IMF World Economic Outlook’s GDP growth forecasts before and after the outbreak. We find that COVID-19 related deaths result in -2.75 percentage points forecasted GDP growth loss in the all sample while oil-dependence induces -7.6 percentage points loss. We document that the joint shock entails higher forecasted growth loss in oil-dependent economies (-10.75 percentage points). Based on oil price forecasts and our empirical findings, we identify five recovery policies with high potential: social safety net policy, economic diversification, innovation and technological transformation, fiscal discipline, and climate-friendly recovery policy.
Acknowledgments: This study has benefited from lengthy comments of one anonymous referee and the editor Gary Campbell. We are grateful to Charles Kofi Owusu, Lorry Symington, and Marina Amoah for their valuable comments and suggestions. The usual disclaimer applies.