Sierra Leone: The African Development Bank (AfDB) has stated in their presentation during the webinar on the 2021 African Economic Outlook for the Asian audiences that debt resolution in Africa has often been disorderly and protracted.
This the Bank say is evidenced as the continent restructured privately-held external liabilities 60 times and official Paris Club debt 149 times between 1950-2017. Debt collateralization, litigation, expanded creditor landscape and domestic arrears accumulation are key factors complicating debt resolutions.
To achieve speedier and less traumatic debt resolution, the AfDB says there is a need for enhanced coordination and reforms in the current global architecture. Strengthening the nexus between good governance and growth is required.
Debt restructuring has often not been associated with improvements in governance and growth. Evidence suggests that Africa has a public investment efficiency gap of 39 percent, partly due to poor governance frameworks.
African countries must eradicate all forms of “leakages” in public resource management to strengthen the links with growth.
On their main policy recommendations, they stated that the global architecture for debt treatment needs to be fixed promote orderly restructuring and resolution for African countries, through reinforced comparability of treatment clauses that bind together private and official creditors.
Also, leverage legal innovations (collective action and aggregation clauses) to facilitate orderly resolution and financial innovations (state-contingent or policy-contingent debt instruments) to decrease risk of default. Revamp the nexus between growth, financing instruments and good governance.
Furthermore, make decisive and bold changes in governance by, strengthening and modernizing domestic resource mobilization, curbing leakages and illicit financial flows, improving transparency and debt management capacity and implementing structural reforms: Digitization and fair competition as fundamental levers for re-igniting growth.
The Bank projects the continent to recover from its worst economic recession in the last 50 years in 2021—with medium term growth projected at over 4 percent. Although access to COVID-19 therapeutics and vaccines have been slow, many economies have reopened to business, observing the relevant health and hygiene protocols.
“Stronger collaboration and business ties with Asia would help make the recovery more durable for both regions. The success of debt relief and restructuring efforts would depend on active participation of Asian countries—China, Japan, India, Korea.
Improved pharmaceutical technology information sharing between Asia and Africa could help speed up production and health supplies in Africa.
Debt decomposition indicates diverse drivers of the debt dynamics as debt accumulation has been driven by three main factors, particularly primary deficits and debt-to-GDP ratio is projected to climb by 10 to 15 percentage points.
The composition of Africa’s debt continues to shift to non-traditional sources such as private creditors which now account for almost half of Africa’s external debt and China is the biggest bilateral creditor to Africa, followed by bondholders.
COVID-19 interventions caused a surge in gross financing needs and debt. Gross financing needs have surged since the onset of the pandemic and as a result, public debt levels have risen significantly.
COVID-19 impacts reversing hard-won gains in poverty reduction in Africa. Extreme poverty rates are set to jump up to 34.4% in 2021 and about 39 million more Africans could slide into extreme poverty in 2021.
Macroeconomic fundamentals have weakened as a result of the pandemic, exchange rate depreciations have continued since the start of the pandemic and counterbalancing forces kept inflation subdued, but core inflation has risen.
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