October 20, 2021

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First Debates on African Debt Management

(African Development Bank) – The 2021 Annual Meetings of the African Development Bank Committee opened on Wednesday, almost devoting themselves to the first discussions on African debt management. Many participants stressed the need for domestic reforms, debt restructuring and effective international support to revive the African economy and avoid over-indebtedness on the continent.

In 2020, Africa recorded the worst recession in 50 years caused by the Govt-19 epidemic. This epidemic has created enormous financial needs for the states, widening the budget deficit and pushing them into debt. In order to avoid excessive debt that could plunge African economies into an abyss, the African Development Bank devotes first day discussions to the African debt issue. Entitled ” From credit resolution to growth: The way forward for Africa This knowledge-based annual meeting is the first in a series of three meetings dedicated to the fight against debt, climate and climate adaptation and the fight against the Govt-19 epidemic.

Dr. Akinwumi A., Chairman, African Development Bank. According to Adicina ” The deep scars left by the Govit-19 epidemic (in Africa) take time to heal . As a result of the epidemic, the continent’s GDP will decline by 2.1% by 2020 (but growth is expected to rise to 3.4% by 2021) and poverty and inequality will continue to grow. At least 30 million Africans will fall into extreme poverty by 2020, and 39 million may face poverty by 2021. The debt-to-GDP ratio is expected to rise from 10% to 15% from 60% in 2020 to 75% in 2021. The credit crunch is widespread.

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The fact of African debt

As of May 2021, of the 38 African countries for which a standard analysis is available, 17 countries are in debt distress, 12 countries are at moderate risk of debt distress, and six countries are already in debt distress. The structure of the African credit mix has undergone significant changes over time from diversified lenders and traditional sources such as the Paris Club to private and non-Paris lenders. In 2000, bilateral lenders, especially members of the Paris Club, accounted for 57% of the debt of African countries. This share will fall to 27% in 2019.

On the other hand, the share of debt held by private lenders has doubled in 2019 from 17% to 40%. At the end of 2019 the total African debt outstanding was $ 841.9 billion which is more than double the annual revenue of Africa today 1 501 billion governments. Last year, the continent’s debt payments reached 20% of tax revenues in African countries and more than a third of some countries’ revenues. Similarly, public debt in North Africa increased by about 12 percentage points last year, averaging 88 percent of GDP.

The African Development Bank estimates that Africa will need an additional $ 485 billion between 2021 and 2023: ” It is clear that many more African countries will face a debt situation without debt restructuring. President Adesina warns. The biggest challenge for us is to find resources and reduce debt .

Its goal is to prevent Africa from losing another decade, which took eight to ten years during previous debt restructuring and did not generate significant representation.

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Solutions to be implemented

One of the immediate solutions is to make the 33 billion Special Drawing Rights (SDRs) announced at the Summit on African Economies in Paris and the $ 100 billion in SDRs that industrialized countries want to make available to African countries as soon as possible. To African countries through the African Development Bank. It will try to suspend the G20 debt service and strengthen the International Monetary Fund (IMF)’s common debt settlement structure, which focuses on debt relief for the most vulnerable countries.

It is also important for African economies to set up an African stability mechanism to protect themselves from foreign shocks, the head of the African Development Bank stressed.

To Cristalina Georgieva, Managing Director of the International Monetary Fund The best way to manage debt is for economies to grow. This is not an easy task during epidemics because governments face reduced revenues and costs for crisis operations. But this crisis is an opportunity for transformative reforms to improve the civil service “The International Monetary Fund plans to increase the capacity for zero interest loans,” said Kristalina Georgieva. Africa can count on the International Monetary Fund To implement its recovery and transformational reform efforts.

World Trade Organization (WTO) Director-General Kristalina Georgieva and Govit-19 stressed that Africa must benefit from vaccines to emerge from the health crisis of rebuilding.

« African debt management strategies should take into account external shocks because they limit financial space and have a significant impact on debt. Finally, we are not going to go into debt, restructuring and recovery cycles, which are bad for long-term growth and living conditions. Aff, A affirmé Ngozi Okonjo-Iweala.

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Participants felt that African countries needed to strengthen resource mobilization to manage public finance and debt in a transparent and productive manner, in two separate panels managed by the Ministers responsible for finance and planning, the governors of the Central Bank and the governors of the African Development Bank. . But above all, ensuring full transparency in the holdings of public institutions that are not members of the Paris Club, especially guaranteed loans from bilateral lenders. It is necessary to further fight corruption, work on spending efficiency, have budget discipline, set up strong institutions for public spending, control illicit financial flows, have good financial management and strengthen connections. Between credit, growth and management.

Digitization of collection and cost circuits should also be developed to reduce wastage. Countries need to make better use of debt by focusing on financing productive social and economic infrastructure. With strong institutional capabilities, debt-funded public investment can improve performance.

Tarek Amar, Governor of the Bank of Egypt and Governor of his country at the African Development Bank, recalled that debt management also depends on the health of central banks. Monetary policy, exchange rate, monetary policy, exchange rate policy, all must be independent Through structural reforms governments need to ensure employment and price stability, thus helping to reduce economic growth and private sector growth debt.

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