Sierra Leone: Akinwumi A. Adesina President of the African Development Bank (AfDB) says debt levels have soared on the continent with debt-to-GDP rising from 60% prior to the pandemic to 70-75%.
The continent he added faces huge fiscal deficits. The International Monetary Fund (IMF) estimates that the financing needs for Sub-Saharan African countries could be $425 billion for 2021-2025.
“Tackling the issue of debt must be our top priority. This is critical for overall financial market stability on the continent in the short and medium term. Without a resolution of Africa’s $700 billion external debt, Africa’s economic recovery will be like running up a steep hill with a backpack full of sand” he said.
Of particular concern, the AfDB President Adesina said is the $377 billion debt owed to private creditors and commercial banks. Total Eurobond debt alone was $169 billion at the end of 2019.
Thinking about the impact that this debt is having, he explained that in 2019, Africa paid $221 billion for debt service, which is 44% of the total government revenues of $501 billion in the same year.
The AfDB President said that a number of efforts are being made to deal with the debt challenge, including the G20 Debt Service Suspension Initiative (DSSI) and the G20 Common Framework on debt treatment for public and private debt.
The DSSI, which has been extended to the end of this year, has only provided $4.5 billion, which is only 3% of Africa’s outstanding bilateral debt.
“Even then, the DSSI does not deal with reducing the quantum of debt of Africa, but only postpones debt service payments. Without doubt, the cost of debt service will continue to rise. The can is kicked down the road, but the reality will catch up when it’s time to pay.
The African Development Bank launched a $10 billion Crisis Response Facility to support countries to meet new fiscal challenges. In addition they also launched a $3 billion Fight COVID-19 social bond on the global capital markets, the largest ever US-dollar denominated social bond in world history, which is listed on the London Stock Exchange, the Luxembourg Stock Exchange and the Nasdaq.
“We project that African economies will recover gradually from the pandemic, with GDP growth expected to be 3.4% in 2021. That recovery is expected to be across the board for oil-exporting countries, tourism-dependent economies, commodity-dependent economies and for non-resource dependent economies. But all these depend on access to vaccines and tackling the issue of Africa’s debt.
“To tackle the issue of vaccines, the Bank is supporting the Africa Centers for Disease Control and Prevention with $28 million to strengthen its capacity. The Bank plans to launch a major effort to build Africa’s pharmaceutical industry to which we plan to invest $3 billion in the next ten years. The Bank is also currently working with partners on how to best support the financing of manufacturing of vaccines on the continent.
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