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More debt to tread water

Although it's campaigning for debt relief, the AfFB is more upbeat than the other multilaterals on the continent's prospects for recovery this year

Africa will recover from its worst recession in half a century and reach growth of 3.4% in 2021, but long–term structural damage to the continent's economies is inevitable. That was the verdict of the African Development Bank in its 2021 African Economic Outlook report, launched on Friday (12 March).

That looks optimistic and, in any case, is far less impressive than it sounds. Most of the growth is likely to be fuelled by South Africa but that is not surprising given its hefty 7.5% contraction last year (AC Vol 62 No 3, Governments face a multi-speed rebound). The International Monetary Fund (IMF) has forecast that Nigeria's economy will grow by 1.5% this year and will not return to pre-pandemic levels until 2022. Few countries – almost exclusively those who are less oil dependent – are likely to buck the trend of only recovering lost output from 2020. Debt burdens are likely to be between 10% and 15% higher post-pandemic, while nearly 70 million Africans are likely to be into extreme poverty. 

The continent's governments will need additional financing of about $154 billion in 2020/21. That is almost certain to be found via new borrowing. Maturing debts and, for the moment, favourable interest rates will see Ghana and Kenya among a group that sells more debt on the Eurobond market over the next 12 months.

At the launch of AfDB report, Nobel laureate Joseph Stiglitz became the latest economist to call for 'comprehensive and quick restructuring' of African government debt. Stiglitz backs an international debt framework, involving the private sector, but warns that inaction and delay is the main thing to avoid.

Yet Western finance ministers continue to haggle over and delay the plan by the Group of 20 – the most ambitious yet produced by wealthy countries – for the IMF to issue more Special Drawing Rights (AC Vol 62 No 5, The money-sharing puzzle). United States Treasury Secretary Janet Yellen wants to ensure that the SDRs prioritise the poorest countries and are not used simply to repay Chinese loans. However, the longer the delay, the more likely African treasuries are to look elsewhere.

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