Contributed by Toukan Corporate Services Limited, Mauritius

The COVID-19 pandemic has pushed the world into a recession. For 2020, it appears that the resulting crisis will be worse than the global financial crisis 2008-2009. The economic damage is mounting across all countries, tracking the sharp rise in new infections and containment measures put in place by governments. China was the first country to experience the full force of the disease, with confirmed active cases at over 60,000 by mid-February. European countries such as Italy, Spain and France, without forgetting the United Kingdom are now in acute phases of the pandemic, followed by the United States where the number of active cases is growing rapidly. In many emerging markets and developing economies, the pandemic appears to be just in the beginning.  

Prior to this unprecedented crisis, the estimate growth for Africa was 3.9%. It is anticipated, in the worst-case scenario and if the outbreak is contained both globally and in Africa, the growth rate will be substantially dwindled- drops to 0.4%. The World Bank proposes a series of economic steps that African countries should take: the short term strategies require Africa to boost health expenditures, contain the spread of COVID-19, stimulate domestic consumption and the central banks should cut interest rates and channel liquidity to firms and households. While there is no denying that every place is facing hardships, countries like South Africa among others, simply do not have the capacity and resources to rebound on their own, unlike the big economies like US, UK and even China. The obvious relief will emanate in the form of debt relief, budget supplements and a commitment to get back to business as usual as soon as possible. For the sake of the whole of Africa, the expectation is the world will do a better job of coordinating the relief effort than it did responding to the virus. Africa’s rise to prominence has suffered a major set-back, and only time will bear testimony on the ability of Africa to recover from this crisis.

In Mauritius, The Minister of Finance, Economic Planning and Development has stated that it is highly probable that the economic growth of Mauritius will drop between 0.1% to 0.3%, according to the estimates of the Bank of Mauritius (BOM) and Business Mauritius.  The impact of this global pandemic will be felt throughout the economy of Mauritius as several workers of both private and public sector will be impacted.  The Government has vouched to take measures to provide financial support of 50% of the Minimum Wage to those who work in the informal sector.

Enterprises that obtain a total net profit of less than Rs50 million may be able to benefit from a Special Relief amount by the BOM, while small companies which have to pay rents to private firms can benefit from a loan under the Development Bank of Mauritius (DBM)’s  Revolutionary Credit Fund and consequently will not have to pay interests till December 2020; and exemption of municipal fees for some 13 000 market stallholders.

In addition, on the fiscal front, European countries’ suffering from the outbreak of the COVID-19 is on an alarming rise. The economic slow-down  does not only leave the EU with a greater impact on the financial markets as most of the international indices are nearing market territory (declining at least 20 percent from the 52-week high) as investors process the lower corporate earnings that will result due to COVID-19. The S&P 500 fell 7 percent to open the March 9 session, triggering a circuit breaker that briefly suspended trading for the first time since 1997. Overall, the index is down about 17 percent from its record high on February 19. Amid the equity route, investors have fled to safe haven such as U.S. Treasury bonds, leading to record low yields. Low yields translate into low borrowing costs for the U.S. government, but low interest rates may not benefit private companies or individuals (or even all sovereigns) who may find financial markets too risk-averse to extend credit in light of such uncertainty. The longer the crisis last, the more economy and company performance will be severely impacted, raising concerns about debt sustainability, especially for highly indebted countries and companies, absent official support.  Whether there is light at the end of the tunnel remains to be seen as France recently announced that it facing an economic downturn like never before, worse than 1941 crisis.

This pandemic is sparing no economies, be it large or emerging ones, and the wise response is to allow the financial sector to revise its long-term strategies for a better future and that of all stakeholders concerned. After every storm, the sun will shine bright and the future depends on how strong the foundation of our World economy is.  

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