‘Not a good time’: Assessing the economic impact of COVID‐19 in Africa using a macro‐micro simulation approach

Abstract

The paper studies the effects of the coronavirus disease 2019 (COVID‐19) pandemic on African economies and household welfare using a top‐down sequential macro‐micro simulation approach. The pandemic is modeled as a supply shock that disrupts economic activities of African countries and then affects households’ consumption behavior, the level of their welfare, and businesses’ investment decisions. The macroeconomic dynamic general equilibrium model is calibrated to account for informality, a key feature of African economies. We find that COVID‐19 could diminish employment in the formal and informal sectors and contract consumption of non‐savers and, especially, savers. These contractions would lead to an economic recession in Africa and widen both fiscal and current account deficits. Extreme poverty is expected to increase further in Africa, in particular if the welfare of the poorest households grows at lower rates. We also use the macroeconomic model to analyze the effects of different fiscal policy responses to the COVID‐19 pandemic.

A Comparative Analysis of the Effects of the African Continental Free Trade Agreement on the Economic Impacts of COVID-19 in North and Southern Africa

“…The authors examine the effects of various economic policies for economic stimulus and find that conventional fiscal stimulus may be less effective than usual because some sectors, being shut down, reduces the Keynesian multiplier feedback effect. Similarly, Morsy et al (2021), in a first phase simulating the macroeconomic effects of COVID-19 in Africa, find that the pandemic would lead to an economic recession and widen fiscal deficits due to the contraction in the level of employment in the formal and informal sectors, including household consumption.…”

“…In a second phase, Morsy et al (2021) explore the different types of fiscal measures implemented by African countries to limit the economic impacts of the disease. The authors find that all fiscal policy instruments succeed in increasing household consumption and income, thus mitigating the effects of Africa's health crisis.…”

Do social protection cash transfers reduce poverty in Rwanda? Evidence from an econometric analysis of Vision Umurenge Program Direct Support

“…The most recent survey carried out in 2016/17 showed that 38.2% of Rwandans live in poverty and 16% in extreme poverty (National Institute of Statistics of Rwanda, 2018). The poverty situation, however, could have worsened following the spread of COVID‐19, in 2019, as the pandemic has dramatically affected the aggregate economy‐wide variables, income distribution and welfare indicators, including poverty (Morsy et al, 2021).…”

Assessing public debt sustainability under COVID‐19 uncertainty: Evidence from Côte d'Ivoire

“…The GDP loss for African countries was estimated at between US$145.5 billion and US$189.7 billion in 2020 (African Development Bank, 2020 , 2021 ). Moreover, the COVID‐19 pandemic could create contractions in employment and consumption that would lead to an economic recession in Africa and widen both fiscal and current account deficits (Morsy et al, 2021 ). In Ethiopia, for example, the economic activity contraction was estimated at 14.3% loss in GDP (Aragie et al, 2021 ).…”