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Managing Africa’s debt burden to spur development – UNECA

by Haruna Gimba
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By Haruna Gimba

Africa needs to mobilize innovative financing for development programmes and effectively manage its debt burden, which left untackled, threatens economic growth.

According to statement issued by United Nation Economic Commission for Africa (UNECA), a workshop on Debt Management, was organized for policy makers from different African countries and research institutions to share challenges and best practices in debt management.

It was revealed during the workshop, that rising debt was constraining economic growth in Africa, worsened by the combined crises of the COVID-19 pandemic and the Ukraine war.

Director of the Macroeconomics and Governance Division at UNECA, Mr. Adam Elhiraika, at the opening the workshop said while debt is a significant source of funding for the economic growth and development of African countries, managing it has remained a major challenge for many countries on the back of multiple global economic crises.

“The COVID-19 pandemic and The Russia-Ukraine war have negatively affected the fiscal performance of African countries, where the debt-to-GDP ratio has increased from 57 per cent in 2019 and by 2021 it was to 66 per cent in 2022,” Elhiraika noted.

He attributed the increase in the debt burden to a growing spending on the health sector in responding to the pandemic as well as the social costs States have borne to mitigate the negative effects of the total or partial shutdown of economic activities.

With weakened domestic currency and increasing external debt, Mr Elhiraika said, the compounded global crises had exacerbated the debt distress for a number of African countries.

Already the debt-to-GDP ratio for oil-importing countries in Africa reached 73 per cent of GDP in 2022, because of skyrocketing energy costs brought about by the Ukraine crisis.

The IMF’s latest list of low-income countries’ Debt Sustainability Analysis (DSA) shows that as of 31 May 2022, 16 African countries were at high risk of debt distress, and seven were already in debt distress.

The International Monetary Fund (IMF) has strongly recommended the G20 to launch the Debt Service Suspension Initiative (DSSI) which was established in 2021.

It has helped countries in focusing their efforts on combating the epidemic and protecting the lives and livelihoods of the most vulnerable individuals.

Mr Elhiraika highlighted that the difficult economic situation facing many African countries has made them account for 52 per cent of the eligible DSSI countries.

Out of the 73 eligible countries, 48 participated in this initiative, which succeeded in suspending the payment of $12.9 billion of debt services between May 2020 and December 2021.

In an effort to help member states, UNECA in 2021 launched the Liquidity and Sustainability Facility (LSF) to lower liquidity premiums and enhance sovereign access to international bond markets for African countries through a regional repo market that conforms to international norms.

The facility has the potential to save African countries an estimated $11 billion over the next five years on borrowing costs. It has already attracted interest from a number of significant international Asset Managers and its potential value in the first year might reach up to $30 billion.

In August 2021, the IMF launched the allocation of Special Drawing Rights (SDR) worth $650 billion to boost global liquidity. Many developed countries had agreed on the reallocation of SDRs to support low-income countries.

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