President of the African Development Bank (AfDB), Akinwumi Adeshina, has disclosed that Africa’s collective debt is now put at 70% of Africa’s gross domestic product (GDP).
Mr. Adeshina, hence, stated that with this latest data, there is a need for governments in Africa to set up an African Financial Stabilisation Mechanism meant to enhance debt restructuring in the continent.
The bank, via a press release on Tuesday, disclosed that Mr. Adeshina made the call at the launch of the 2021 edition of the bank’s annual African Economic Outlook where he stressed the need for a quick and comprehensive plan to achieve such objective.
Data made available by the bank at the event, estimated a 2.1% contraction of Africa’s GDP in 2020, representing the continent’s first recession in half a century, but however projects Africa’s GDP to experience a 3.4% growth in 2021.
Mr. Adeshina stated: “It is high time that we set up a homegrown financial stability mechanism where we work together to mutualize our funds and ensure we avoid the spillover effects that come from global pandemics or any external shocks.”
The AfDB chief further stated that: “We must start by making sure that we carry out the macroeconomic policy reforms and the fiscal policy reforms that we need to get done.”
Africa “is not looking for a free pass. We are just looking for an equitable way in which Africa’s fiscal space gets dealt with,” Mr. Adeshina added.
Going by data provided by the Africa Economic Outlook, the share of commercial creditors in Africa’s external debt stock rose to 40% by the end of 2019 from 17% in 2000, which is more than double in the last two decades.
Regarding the continent’s response to the COVID-19 crisis, the report adds that African governments will need an additional $154 billion gross financing in 2020/21.
The AfDB president revealed that there could be some form of respite for the continent as the International Monetary Fund (IMF) may soon issue new special drawing rights of about $500 billion which he says will be in accordance with the G20’s recommendation.
He pointed out that the funds will help stabilize foreign reserves and
exchange rate which will provide the continent with the ability to manage its debts and further concentrate on investments that will help it recover from the effects of the pandemic.