Africa’s creditors may have to consider freezing debt to allow countries on the continent access to billions of dollars in funding they will need to fight the Covid-19 pandemic that has seen the global economy grind to a halt.
While the pandemic has not spread as fast on the continent as it has in Europe, Africa’s relative lack of infrastructure and debt leaves it at a unique disadvantage against the virus. So far, there have been just over 11 400 cases compared to 1 536 094 globally – as of Thursday – with the US leading the way with 435 167 cases.
African governments “… do not have much wiggle room in deploying much-needed fiscal policy to respond, particularly because of the debt situation, where many countries are spending as much as 70% of their budgets to pay salaries and service debt,” chief economist for the Africa region at the World Bank, Albert Zeufack, said on Thursday.
His remarks coincided with the release of the World Bank Group Africa’s Pulse report, which warned that the continent would fall into a recession for the first time in 25 years.
A microcosm of the debt challenge facing sub-Saharan Africa is that its second-biggest economy, South Africa, has seen its borrowing levels increase beyond the recommended mark for emerging market countries. National Treasury warned last year that debt was set to top 70% of its total GDP by 2023.
Zeufack said if Africa’s various creditors collectively decided to institute a moratorium on the debt that the continent owed, this could free up $44 billion to respond to Covid-19.
“…This may have to come in the form of a debt freeze. The world and lenders to Africa must enact a pause on debt service.”
“This is a global crisis, and the response must be global. Individual responses in Africa might be important but they may not be enough. A response at the African Union level may be more useful than an individual response,” he said.
In the short-term and looking beyond the coronavirus pandemic, Zeufack said African economies could strengthen regional value chains and take advantage of African free-trade conventions that have been on the table for years.
Investec Chief Economist Annabel Bishop said she “firmly believed” Africa needed “as much aid and support from wealthy countries and relief from debt payments as possible in this unprecedented time”.
She told Fin24: “Africa is facing an extreme humanitarian crisis and will only cope with maximum support and real meaningful aid from wealthy countries (and from the multilateral wealthy countries support), and part of this surely needs to be relief from debt payments so these monies can be used instead to save actual lives and livelihoods.”
The World Bank projects economic growth in Sub-Saharan Africa will decline from 2.4% in 2019 to -2.1% to -5.1% in 2020. This would thrust the region into its first recession in 25 years, the report said.