High debt remains a threat to Africa’s economic recovery – AfDB

High public debt is threatening recovery efforts in Africa and hindering the prospects of high and sustainable economic growth, according to the 2022 African Economic Outlook.

The report released by the African Development Bank (AfDB) also noted that although Africa’s debt-to-gross Domestic Product (GDP) ratio is estimated to stabilise around 70 per cent in 2021 and 2022, from 71.4 per cent in 2020, it will remain above pre-pandemic levels.

This is despite growth recovery and debt relief initiatives such as the Debt Service Suspension Initiative (DSSI), the Common Framework, and the International Monetary Fund’s general allocation of $650 billion equivalent in Special Drawing Rights (SDRs).

According to the report, even though these initiatives have helped alleviate liquidity pressures in many countries by boosting external buffers, they have not erased debt vulnerabilities as 23 African countries were either in or at risk of debt distress as of February 2022.

“African countries need to accelerate governance reforms and improve public financial management if they are to decisively address their recurrent debt vulnerabilities” it stated.

It further encouraged additional structural reforms such as debt restructuring, and reprioritisation of public spending to ensure long-term debt sustainability.

According to the report, domestic policy response on the continent has been constrained by limited fiscal space amid growing social sector spending pressures.

it, therefore, noted that reconfiguring the global debt relief architecture, including reinstating the DSSI, would be crucial in supporting debt-ridden African countries’ transition toward a path of sustainable debt in the medium to long term.

This, it said, would require the building of strong budget institutions to efficiently mobilise domestic resources, conduct sound public expenditure, and implement rigorous debt management and budgeting.

It also highlighted that a reconfigured DSSI and Common Framework will limit the impact on Africa’s public debt from currency depreciation due to the global uncertainty stoked by the Russia–Ukraine conflict and spillover effects of the tight monetary policy stance being implemented in advanced economies.

“Reinstate and reconfigure the DSSI and Common Framework and scale up efforts to accelerate governance reforms and strengthen public financial management to deal with the structural challenges of Africa’s rising public debt” it recommended.

It added that “It is therefore imperative that the global community rethink terminating the DSSI framework, which was designed to provide temporary relief to countries facing growing debt overhang”.

Source: GNA

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