The African Development Bank (AfDB) has said observations have been made with regard to some significant emerging vulnerabilities in debts owed by countries on the continent.
The Bank’s assertion is premised on the fact that, safety fiscal margins of African countries with huge debts are being eroded by COVID–19, as spending rises and revenue falls.
More so, credit rating downgrades are likely to occur for many African countries in the near to medium term which could result in loss of access to international capital markets as a result of deteriorating debt sustainability ratings.
According to the Bank, aside the aforementioned emerging vulnerabilities to debts of African countries, other emerging debt vulnerabilities include; Fast-growing interest expenses as a share of revenue; rollover risks due to shorter debt maturities; a narrowing of the differential between the real (inflation-adjusted) interest rate and growth; expanding contingent liabilities; and limited transparency of debt collateralization.
The AfDB posits that as of December 2020, of the 38 countries for which debt sustainability analyses are available, fourteen (14) were rated in high risk of debt distress and another six (6) were already in debt distress.
Also, sixteen (16) African countries have a moderate risk of debt-distress, while two (2) are considered at low risk of debt-distress.
A decomposition of Africa’s debt dynamics, the multilateral institution notes, shows that debt accumulation on the continent in recent years has been driven by exchange rate depreciation, growing interest expense, high primary deficits, poor governance, weak institutions, ambitious public investment programmes and increased defense-related expenditures.
Debt accumulation as a percentage to GDP, the AfDB however notes, has been dampened by the strong GDP growth recorded prior the pandemic.
The Bank further pointed out that the creditor base for Africa’s debt continues to shift away from traditional multilateral and bilateral Paris Club sources toward commercial creditors and non-Paris Club official lenders like China.
The share of commercial creditors in Africa’s external debt stock, the AfDB says has more than doubled in the last two decades, from 17 percent in 2000 to 40 percent by the end of 2019.
“At least 21 African countries accessed international capital markets between 2000 and 2020. Non-frontier-market economies and low-income countries—which do not have access to international capital markets—have continued to rely on bilateral and multilateral concessional credit, although there has been a shift away from traditional Paris Club lenders to nonParis Club lenders, notably China,” said the AfDB.
Debt-to-Gross Domestic Product (GDP) on the continent is expected to averagely increase by 10 – 15 percent in the short to medium-term, which is likely to present serious challenges to African economies.
In view of that, President of the AfDB, Dr Akinwumi Adesina, has called for a quick and comprehensive plan for debt restructuring for Africa given that the continent’s unsustainable debt levels.
Dr Adesina has urged African governments to consider collectively establishing an African financial stabilization mechanism, which would give Africa the fiscal space it needs to deal with debts.
