African countries facing a new debt crisis need more long-term solutions, including debt restructuring accompanied by government reforms, to spur economic recovery, the continent’s biggest lender said Friday.
“The time for one last debt relief for Africa is now,” Akinwumi Adesina, president at the African Development Bank, was quoted as saying in the lender’s latest “African Economic Outlook” report.
“Last year’s sovereign default of Zambia casts a shadow over several other countries’ debt this year,” he said at the launch of the report. “It is easy to see why, if we end up with a very low for long growth scenario, debt sustainability is becoming such [an] imminent issue."
Why it matters: The average debt-to-gross domestic product ratio for Africa is expected to climb by 10 to 15 percentage points in 2021, up from around 60% in 2019, with African governments needing additional gross financing of about $154 billion to respond to the COVID-19 crisis.
"It’s important to realize that debt restructuring is linked to economic recovery that can lead to growth,” Rabah Arezki, chief economist at AfDB, said Friday.
“We need to promote a coordinated response to debt restructuring as proposed in the G-20 framework,” he said, referring to the group of industrial and emerging-market nations. “Early debt restructuring will help bring growth and, as a result, help countries maintain market access. If Africa loses access to markets or finds itself in a situation where growth stagnates, it will have repercussions for the world.”
What’s next: In 2021, Africa is projected to recover from its worst economic recession in a half-century. Growth for the year is expected at 3.4%, after contracting by 2.1% last year. Still, uncertainty surrounding the outlook remains.
Recovery among African countries could be jeopardized by a spike in COVID-19 cases, a growing debt burden, limited external capital flows, a continued commodity price slump, and a slowdown in tourism and remittances, the report said. Effective vaccine rollouts and the full implementation of the African Continental Free Trade Agreement, together with a quick and coordinated response to manage debt levels, could skew risks to the upside.
Any economic relief will require that countries commit to “bold governance reforms to eliminate all forms of leakages in public resources, improve domestic resource mobilization, and enhance transparency, including on debt and in the natural resource sector,” Adesina said.