THE confluence of Africa’s growing debt crisis and the ongoing Covid-19 pandemic could prove catastrophic for already fragile economies on the continent unless decisive action is taken to rescue vulnerable households, preserve jobs and lessen the socio-economic fallout.
Zimbabwe, already categorised as a weak and fragile economy before the coronavirus unleashed havoc, is particularly at risk.
In sub-Saharan Africa, 16 countries were classified last year by the World Bank as having either a high risk of debt distress or being in debt distress. The average public debt in the region was estimated at 57% of gross domestic product (GDP) as at the end of 2018. Between 2010 and 2018, the debt payments of developing countries increased by 85%, which sent alarm bells ringing.
Covid-19 is severely weakening these already troubled economies. This public health emergency makes it vital for policymakers, civil society, development practitioners, the media and the citizenry to focus the spotlight on the fiscal solvency of the fragile economies and their vulnerability to a rising debt stock as well as the wider impact on socio-economic development.
Professor Brian Raftoupoulus, a development expert from South Africa’s University of the Western Cape, says the continent’s post-Covid economic prospects will depend “in large measure, on re-negotiation with the international financial institutions.”
He adds: “More specifically, this will require progressive measures around assistance with the clearance of foreign debt, as well as the loss of foreign currency earnings from the decline of exports.”
The issue of debt is best understood in the proper context. Although borrowing can enhance a nation’s capacity to deliver on socio-economic development, it can also precipitate structural vulnerabilities if the resultant debt burden is handled imprudently. How best can nations navigate the treacherous road to debt sustainability?
Debt is not a simplistic matter; there are no easy answers. If anything, it is a complex Gordian knot — and it is only by untangling and dissecting the various nodes and layers that we can arrive at the answers. There is a wide array of factors at play: Fiscal deficits, inadequate public finance management frameworks, commodity dependency, corruption, inefficient public investment, and the rise of non-concessional borrowing.
The challenges are many, but so too are the opportunities.Southern Africa, a region endowed with vast natural resources, is an intriguing theatre of the geopolitics of strategic minerals as China, the United States and Russia are locked in a renewed scramble for economic opportunities in this part of the world.
But from a public debt sustainability perspective, can the regional countries rise to the challenge by taking advantage of the global powers’ renewed interest in natural resources?
In a post-Covid world, African governments should carefully outline their respective countries’ competitive advantages in the global marketplace.
Mineral resources are a good starting point, but without good governance — as Zimbabwe has painfully shown — it may all prove futile.