Africa’s growth prospects bullish despite COVID-19, debt burden

DESPITE the challenging backdrop of a global pandemic and external economic shocks, Africa is expected to recover from its worst recession in half a century and reach 3,4% growth in 2021.

The outbreak of the novel coronavirus in December 2019 has taken a massive toll on Africa, hitting tourism-dependent economies, oil-exporting economies and other-resource intensive economies the hardest, as well as deepening inequality.

The continent-wide projected recovery, following a 2,1% contraction in 2020, does not remove the threat of increasing poverty.

An estimated 39 million Africans could possibly slip into extreme poverty this year, following about 30 million who were pushed into extreme poverty in 2020 as a result of the pandemic.

The report finds that populations with lower levels of education, few assets, and working in informal jobs are the most affected and must be protected.

Africa’s predicted growth could be subject to major downside risks arising from both external and domestic factors.

In 2020, government spending across the African continent skyrocketed as countries strived to support their populations through the pandemic.

This has had a direct negative impact on budgetary balances and debt burdens: the average debt-to-gross domestic product (GDP) ratio for Africa is expected to climb by 10 to 15 percentage points in the short to medium term, fuelled by the surge in government spending and the contraction of fiscal revenues as a result of COVID–19.

This will result in fast-paced debt accumulation in the near to medium term.

Although the average debtto-GDP ratio had stabilised around 60% of GDP, recent debt restructuring experiences in Africa have been costly and lengthy because of information asymmetries, creditor co-ordination problems, and the use of more complicated debt instruments.

Fundamentals of Africa’s debt burden must be prioritised and not ignored.

Africa needs to address her debt and development finance challenges in partnership with the international community.

Much larger financial support is needed and private sector creditors need to be part of the solution. The time for one last debt relief drive for Africa is now.

Africa Ideas