Debt won’t accelerate Africa’s development AfDB

AFRICAN countries must mobilise adequate domestic resources to finance own growth as reliance on debt alone will not accelerate the continent’s development, the African Development Bank has warned.

Amid the ravaging impacts of the Covid-19 pandemic on many economies, the African Development Bank (AfDB) estimates that Africa’s Gross Domestic Product (DGP) would have declined by $173-236 billion by the end of this month.

With the global economy becoming more fragile due to disruptive lockdowns, many African countries have been seeking debt relief and foreign loan funding to cushion their economies.

According to AfDB, total outstanding debt on the continent is over $700 billion. While bilateral concessional debt finance has declined from 52 percent to 27 percent between 2000 and 2019, commercial debt owed to private creditors increased from 17 percent to 40 percent in the same period, it said.

Private commercial debtors held some $44 billion in Eurobond debt for 10 African countries at the end of September 2020.

The AfDB warns that the rise in debt burden for the continent is not good for the future and suggests building back African economies with resilience and high domestic resource mobilisation options.

“The lesson for Africa is clear: Africa simply cannot accelerate its development by relying only on debt, especially expensive bilateral and commercial debt,” said AfDB president, Dr Akinwumi Adesina.

“Africa must grow by mobilising domestic resources, especially by unlocking its over $1 trillion in pension funds, sovereign wealth funds and insurance funds. “These should be better harnessed to help close the annual infrastructure financing gap estimated at $64108 billion.”

As such, Dr Adesina, who delivered a keynote address during a recent virtual 2020 International Forum on African Leadership, emphasised building of effective partnerships and reinforcing leadership to navigate through the Covid-19 pandemic challenges.

He said AfDB has launched a $10 billion crisis response facility to support countries’ immediate needs for liquidity. The bank also launched a $3 billion fight Covid-19 social bond on the global capital markets, the largest US dollar denominated social bond ever in world history.

The AfDB believes Africa would build back faster by also harnessing and better managing the revenue streams from its abundant natural resources, including minerals, metals, biodiversity, blue economy, forest resources, agriculture and oil and gas, in order to boost domestic savings.

As Africa builds back, Dr Adesina said priority should be put on the quality of growth, which is more equitable and focused on sectors that are better able to create jobs.

“Much larger financial support is needed, and the private sector creditors need to be part of the solution,” he said.

Going forward, the AfDB says more transparent governance over natural resources must form a key component of financing Africa’s growth.