…Continent’s GDP to grow by 3.4%
…But govts need $154bn to respond to Covid crisis
…Recovery doesn’t remove poverty threat, with 39m to slip into the extreme
…Populations with lower education, few assets, in informal jobs most hit; must be protected.
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Ben Eguzozie, in Port Harcourt
Africa’s growth prospects this 2021 would be bullish, despite the challenging backdrop of the Covid-19 global pandemic and external economic shocks. The continent is expected to recover from its worst recession in half a century, and reach 3.4 per cent growth in the year, the African Development Bank (AfDB) said in its 2021 African Economic Outlook report.
The continent, with a 1.3 billion people witnessed its first recession in half-a-century, as its economy continent-wide contracted by 2.1 per cent in 2020, which many have tagged “year of pandemic.”
The outbreak of the novel coronavirus in December 2019 has taken a massive toll on Africa, hitting tourism-dependent economies, oil-exporting economies and other resource-intensive economies the hardest, as well as deepening inequality.
The AfDB’s African Economic Outlook, published annually since 2003, provides headline numbers on Africa’s economic performance and outlook. This year’s theme: “From Debt Resolution to Growth: The Road Ahead for Africa,” highlighted the impact of Covid-19 and government debt, offering mitigating measures to governments and policy makers.
The continent-wide projected recovery, however, does not remove the threat of increasing poverty, the report said. For example, the economic impact of the pandemic varies across economic characteristics and regions, but the projected recovery is broad-based.
It also said, the average debt-to-GDP ratio for Africa is expected to climb by 10 to 15 percentage points in the short-to-medium term.
“The time for one last debt relief for Africa is now” – said Akinwumi Adesina, the AfDB president.
An estimated 39 million Africans could possibly slip into extreme poverty this year, following about 30 million who were pushed into extreme poverty in 2020 as a result of the pandemic. The report finds that populations with lower levels of education, few assets, and working in informal jobs are the most affected; and must be protected.
According to AfDB vice president and chief economist, Rabah Arezki, cautioned that Africa’s predicted growth could be subject to major downside risks arising from both external and domestic factors.
“The cost of inaction will be large,” Arezki warned, while presenting the report during a virtual launch ceremony.
In 2020, government spending across the African continent skyrocketed as countries strived to support their populations through the pandemic. This has had a direct negative impact on budgetary balances and debt burdens: the average debt-to-GDP ratio for Africa is expected to climb by 10 to 15 percentage points in the short-to-medium-term, fuelled by the surge in government spending, and the contraction of fiscal revenues as a result of Covid–19.
This will result in fast-paced debt accumulation in the near-to-medium-term. Although the average debt-to-GDP ratio had stabilized around 60 per cent of GDP, recent debt restructuring experiences in Africa have been costly and lengthy, because of information asymmetries, creditor coordination problems, and the use of more complicated debt instruments, the report said.
Meanwhile, Akinwumi Adesina, African Development Bank president warned, however, that the fundamentals of Africa’s debt burden must be prioritized and not ignored.
“We need to address Africa’s debt and development finance challenges in partnership with the international community. Much larger financial support is needed, and private sector creditors need to be part of the solution. The time for one last debt relief drive for Africa is now,” Adesina said.
Regarding debt, the AfDB African Economic Outlook 2021 report estimates that African governments need additional gross financing of about $154 billion in 2020/21 to respond to the Covid-19 crisis.
The AfDB African economic outlook report made important recommendations for a multi-pronged policy approach to addressing the pandemic. These include: supporting the health sector with resources for health care systems to cope with the virus and other preventable diseases; monetary and fiscal support to underpin economic recovery; expanding social safety nets and making growth more equitable; minimizing the long-term implications of the pandemic on human capital accumulation by opening schools and scaling up active labour market policies to retool the labour force for the future of work through digitalization, industrialization, and diversification.
For Hannan Morsy, director of the AfDB’s macroeconomic policy, forecasting and research department: “We have a once-in-a-century opportunity at building forward better, more equitable, more sustainable and above all more resilient. Prompt and bold measures are needed to make it happen, the report highlights the required actions,” he said.
The Bank had reacted swiftly to the Covid-19 pandemic, putting in place a crisis response facility to support countries in mitigating the health and economic effects of the pandemic. The Bank also launched a $3 billion Fight COVID–19 social bond on global capital markets, which at the time was the largest U.S. dollar-denominated social bond ever.