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Africa News of Tuesday, 23 March 2021

Source: theeastafrican.co.ke/

Growing Africa debt sinks countries into distress

Africa’s increased debt accumulation has pushed several countries into debt distress with fears that many governments would not be able to access the international capital markets for more funding, according to a new report by the African Development Bank (AfDB).

The African Economic Outlook report, 2021, titled From Debt Resolution to Growth: The Road Ahead for Africa shows that by December 2020, 14 of the 38 countries for which debt sustainability analyses are available were rated at high risk of debt distress while another six were already in debt distress.

The report shows that 16 countries have a moderate risk of debt distress, while two are considered at low risk as many lose access to international capital markets from falling debt sustainability ratings.

“Safety margins are being eroded by Covid-19, as spending rises and revenue falls. Moreover, credit rating downgrades are likely to occur for many countries in the near to medium term.”

Disproportionate

About 30 million Africans were pushed into extreme poverty in 2020 as a result of the Covid-19 pandemic and it is estimated that about 39 million Africans could fall into extreme poverty in 2021.

Women and female-headed households could represent a large proportion of the newly poor.

Debt accumulation is projected to accelerate quickly from the combined effect of increased public spending and a contraction in GDP and revenue.

A decomposition of Africa’s debt dynamics shows that debt accumulation has been driven by exchange rate depreciation, growing interest expense, high primary deficits, poor governance, weak institutions, ambitious public investment programs, and increased defence-related expenditures.

“Other emerging vulnerabilities include loss of access to international capital markets as a result of deteriorating debt sustainability ratings, fast-growing interest expenses as a share of revenue, rollover risks due to shorter debt maturities, expanding contingent liabilities and limited transparency of debt collateralisation,” the report says.

This projected recovery from the worst recession in more than half a century will be underpinned by the resumption of tourism, a rebound in commodity prices, and the rollback of virus-induced restrictions.

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