COVID-19 will have a devastating impact on African economies. While the worst of the health crisis has yet to hit the continent, the economic consequenses are already biting. Tourism has dried up, food prices are increasing, and households that depend on working daily to earn enough to eat will be hit hard by social distancing measures.
At the government level, low oil prices are hitting revenues while costs for imports and debt repayments have increased because of the strength of the US dollar.
Even before the COVID-19 pandemic, rising African debt levels had made it into the headlines. While, overall debt levels have not reached the alarming levels of the late 1990s monthly interest payments have; 30 countries spend more on debt repayments than they do on healthcare. Developing countries have seen a 125% increase in the amount of service paid on debt between 2011 and 2019, accounting for 12.4% of government revenue.
Increased debt in itself is not a problem; all countries need finance; but it needs to be sustainable. African debt is increasingly held in foreign currency so the cost of repayment has skyrocketed with the strength of the US Dollar. The debt is also increasingly held by a wide range of private creditors, and is less concessional. China has become a dominant lender, accounting for 55% of net debt inflows to all developing countries in 2017 and an estimated 20% of Africa’s debt stocks.
All of these factors could be manageable, but here is the rub: domestic resource mobilization is not keeping pace, it has risen 31% since 2013, against a 128% rise in interest payments. This means less money for public services and investment.
On top of this situation, the COVID-19 crisis has created a toxic cocktail of factors that make this an extraordinary situation. As the world’s governments throw the fiscal rule book out the window, it would be extraordinary not to take extraordinary action in Africa.
Responding with immediate debt relief is not a matter of charity. It is a smart strategy to support a global response to this crisis. Because, in the words of Ellen Johnson Sirleaf, ‘coronavirus anywhere is a threat to people everywhere.’