Southern Times Writer
Windhoek – For African countries at the General Debate of the 2021 United Nations General Assembly, COVID-19 and economic recovery were major areas of focus.
And through those narratives emerged the issue of debt.
The Chairperson of the Southern African Development Community (SADC), President Lazarus Chakwera of Malawi led the way, highlighting that a key ingredient for economic recovery for the world’s developing countries was a debt write-off.
Pointing to the breathing room provided by the G20 Debt Service Suspension Initiative (DSSI), President Chakwera said a more holistic approach would create even better conditions for shared recovery from the impact of the pandemic.
“This is the single most impactful thing that would help developing nations like Malawi build back better and not be left behind. To help us recover from the economic devastation caused by this pandemic, the starting point is three words: Cancel the Debts,” President Chakwera said.
A new report by the Germany-based Kiel Institute for the World Economy says as much.
Ms Saskia Meuchelboeck, a researcher with the institute, says, “The G20 has already agreed on debt restructuring and relief for countries with unsustainable debt burdens but these efforts are unlikely to be enough to give Africa financial room for manoeuvre.
“In order to regain fiscal space, further suspension of official debt payments and in some cases debt relief may be needed, provided distressed countries put in place medium-term consolidation programmes, including mobilisation of tax revenues and realising efficiency gains in the public sector.”
According to the African Development Bank, the COVID-19 pandemic has resulted in a surge in borrowing as governments make unforeseen expenditure on public health and other social needs. In all, African governments needed additional financing of between US$125 billion and US$154 billion in 2020.
The result has been that more countries have been plunged into debt distress.
“In the short term, the average debt-to-GDP ratio in Africa is expected to increase significantly to over 70 percent, from 60 percent in 2019. Most countries in Africa are expected to experience significant increases in their debt-to-GDP ratios for 2020 and 2021, especially resource-intensive economies,” the AfDB says.
It continues: “The outlook for Africa’s debt sustainability is challenged by emerging risks and vulnerabilities. Six 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.”
Not enough SDRs
Another talking point vis-à-vis the pandemic and debt has been the US$650 billion disbursement of Special Drawing Rights (SDRs) by the IMF.
While welcomed by most governments and observers, the general agreement is that the disbursement falls far short of requirements.
Secondly, the allocation formula means the countries that need the money the most got US$275 billion of this – less than half – while the already rich took the bulk. For SADC, the allocation came to US$11.16 billion for 16 developing countries.
President Félix Tshisekedi of the DRC, who is also the African Union Chairperson, told the UN General Assembly that, “The US$33 billion Special Drawing Rights allocated to Africa are insufficient given the immensity of Africa’s needs for its economic recovery. This is why the UN and its member states must support the objective of the Paris Summit of reaching 100 billion SDRs for Africa.”
Rwandan President Paul Kagame weighed in saying: “A further reallocation of new SDRs to countries that need them most will help create the fiscal space for a faster and more equitable recovery from the pandemic.”
SADC Debt Summary
Angola: As of 2020, Angola’s external debt amounted to nearly 150 percent of GDP against a SADC target of 60 percent. In monetary terms, foreign debt was US$68.7 billion. To put the surge in perspective, in 2019 the external debt-to-GDP ratio was 78 percent.
Botswana: In 2020, the Botswana national was just below 20 percent of GDP. This makes Botswana one of the countries with the best debt levels in Africa.
Comoros: Estimates are that the debt-to-GDP ratio in Comoros will reach 27.4 percent by the end of 2021. This is well within the SADC target of 60 percent.
DRC: Despite instability in the east of the country, the debt-to-GDP ratio of 21.2 percent in 2020 (US$10.175 billion) makes the DRC is among the least indebted countries in Africa.
ESwatini: The AfDB says eSwatini’s national debt in 2020 was 47.08 percent of GDP, this “largely driven by a persistent fiscal deficit” as the government relies on the domestic market to finance the deficit, thus accruing a significant domestic debt.
Lesotho: Indications are the debt could reach 62.8 percent of GDP in 2021 due to COVID-19. As such, Lesotho’s risk of external debt distress has revised from low in 2019 to moderate.
Madagascar: The island state’s debt-to-GDP ratio deteriorated from 38.7 percent in 2019 to 44.8 percent last year. Madagascar external debt was 32.6 percent of GDP and the domestic debt was 12.2 percent of GDP.
Malawi: Malawi’s total public debt stood at 54 percent of GDP I mid-2020, and this could balloon to 78.2 percent by the close of 2021. Projections are that it will climb to 81.3 percent of GDP in 2022, 83 percent in 2023, and then again to 83.8 percent in 2024.
Mauritius: Following huge inroads in reducing public debt to 48.6 percent of GDP in 2013 from 63.7 percent in 2008, the Parliament of Mauritius set a statutory limit of 60 percent. However, debt is projected to be 76.1 percent in 2021 from 64.6 percent in 2020.
Mozambique: Mozambique recorded a debt-to-GDP ratio of 113.7 percent in 2020, according to the central bank, meaning the country is in acute debt distress.
Namibia: The country’s public debt is projected to be 67.5 percent of GDP in 2020 and 68.4 percent in 2021. It was 58.4 percent in 2019. However, Namibia’s highly liquid financial sector provides a buffer with assets equivalent to 120 percent of GDP.
Seychelles: The debt-to-GDP ratio in Seychelles could reach 83 percent by the end of 2021, according to analysts at Trading Economics.
South Africa: South Africa’s debt-to-GDP ratio is projected at 87 percent by the close of 2021.
Tanzania: In October 2020, Tanzania’s public debt stood at 39.2 percent of GDP, with the external debt accounting for 73 percent of the total.
Zambia: Zambia – like Angola and Mozambique – is in choppy waters with a debt-to-GDP ratio of 104 percent, which the AfDB characterises as unsustainable.
Zimbabwe: Zimbabwe’s total public debt is US$11.1 billion, which is 53.9 percent of GDP. More than 95.6 percent of this is external debt.