Thabiso Scotch Mufambi
Harare – African governments have spent US$154 billion over and above their average regular expenditure in response to the COVID-19 pandemic.
This is contained in the African Development Bank’s 2021 African Economic Outlook report.
The AfDB says, “Since the COVID–19 pandemic began in early 2020, governments have announced fiscal stimulus packages ranging in cost from about 0.02 percent of GDP in South Sudan to about 10.4 percent of GDP in South Africa. These fiscal stimulus packages have largely had immediate, direct implications for budgetary balances, borrowing needs, and debt levels.
“The bank estimates that African governments need additional gross financing of about US$154 billion in 2020/21 to respond to the crisis. The surge in government financing needs as a result of COVID–19 spending will result in fast-paced debt accumulation.
“Although the average debt-to-GDP ratio, a standard measure of debt sustainability, had stabilized at around 60 percent of GDP at the end of 2019, pandemic-related spending is estimated to have caused the debt-to-GDP ratio to average as many as 10 percentage points higher at the end of 2020. Countries expected to account for the most significant increase in Africa’s overall average debt levels are those that have non-oil resource-intensive economies.”
The bank said Africa’s pre-pandemic debt level was already high, highlighting that the ongoing COVID–19 pandemic would push governments into more borrowing.
It said Africa’s borrowing was shifting toward commercial and non-Paris Club creditors, and from external to domestic sources.
“Between 2000 and 2019, 18 African sovereigns have made debuts into international capital markets and issued more than 125 Eurobond instruments valued at more than US$155 billion. Local currency debt has increased since 2019, accounting for close to 40 percent of the total debt stock,” the bank said.
According to the AfDB, Africa’s top five creditors since 2015 are bondholders (27 percent of external debt by the end of 2019), China (13 percent), the World Bank-International Development Association (12 percent), the AfDB (seven percent), and other multilateral lenders (seven percent).
Of the continent’s top-five bilateral creditors, China tops the list (13 percent of total debt), followed by the United States (four percent), France (2.9 percent), Saudi Arabia (2.5 percent) and the United Kingdom (2.4 percent). Other big creditors include Germany, Japan, Kuwait, the UAE, India and Italy.
The deteriorating situation has seen calls for debt restructuring and cancellations getting louder; with the AfDB saying six African countries were in debt distress and 14 others were at high risk of debt distress as of December 2020.
“Going forward, strengthening the links between debt financing and growth returns would play an important role in ensuring debt sustainability on the continent. Improvements in the efficiency of debt-financed investments would ensure that debt is used to finance the most productive projects that generate sufficient growth and complementarities to pay off the debt in future,” the AfDB said.
“Large and increasing sovereign debt burdens could pave the way for disorderly defaults and more of the lengthy resolutions that African debtor countries typically experience, with costly economic consequences. It is essential to prevent debt sustainability concerns from becoming a major obstacle to Africa’s progress toward prosperity. Today, the COVID–19 shock provides a strong rationale for the international community to deliver significant debt relief — especially for poorest African countries — to avoid another ‘lost decade’.
The African Forum and Network on Debt and Development (AFRODAD) also insists that current debt resolution proposals and initiatives merely postpone the problem rather than holistically dealing with it. A case in point, it says, is the G20, IMF and World Bank-fronted Debt Service Suspension Initiative (DSSI).
“The debt service suspension does not address the debt crisis, it just postpones the problem. Africa needs a debt resolution mechanism that addresses the legality, legitimacy, and sustainability of debts,” AFRODAD senior policy officer Mr Tirivangani Mutazu said this week.