36th Ordinary Session of The AU Assembly (Heads of State and Government Session)
The AU theme for the year 2023, “Accelerating the implementation of AfCFTA”
REFLECTION WEBINAR
22nd February 2023 at 09:00 GMT
LINK: https://us02web.zoom.us/webinar/register/WN_SLvjwNfySmGKaTl6IcN-7Q
Dealing with Fiscal Constraints amid Increasing Indebtedness in Africa: Looking Beyond the G20 Common Framework Debt Initiative
Global economic recovery from Covid-19 shocks has been slow. However, the effect of the pandemic still lingers on as it has accelerated Africa’s debt crisis – further exacerbated by the outbreak of war in Eastern Europe whose geopolitical tensions has also produced a food crisis and rising cost of living for many African countries. World Bank analysis and reports show that economic growth in Sub-Saharan Africa (SSA) decelerate by 3.6 percent in 2022 – down from 4 percent in 2021 but up from zero percent in 2020 due to the economic slowdown induced by the outbreak of the covid-19 pandemic. This occurred amidst a chaotic global environment with multiple (and new) shocks, high volatility, and uncertainty which has also accelerated a debt crisis in the continent with additional countries facing debt distress and seeking for det treatment under the Common Framework – Ghana being the latest country to join Chad, Ethiopia and Ghana as the only country after the Framework was put in place in 2021.
The African continent continues to repatriate much-needed revenues to developed countries in the form of debt servicing, profit shifting, raw material exports and importation of finished goods coupled with limited internal trade that further constrain the continent’s ability to meet essential services for its citizens, including much-needed investment in social safety nets. These challenges have been exacerbated by the Russian-Ukrainian war that is piling pressure on food security – shortages and rising prices, including the persistent climate change risks that are wreaking havoc on the continent with countries like Nigeria experiencing flooding and Kenya experiencing severe drought that has led to deaths both of people and livestock including displacement and severe malnutrition in children.
Join the webinar and hear distinguished speakers argue why indebtedness remains a threat to the continent’s economic recovery, despite initiatives such as AfCFTA.
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Despite the economic slowdown, 53 of Africa’s 54 countries posted growth and raising concerns if the current situation will not require the need for revised positions as we move into 2023 – especially regarding how to deal with debt beyond just the G20 Common Framework. It also begs the question of whether additional SDRs are not required to enable countries get the required fiscal space to adequately find macroeconomic stability to engage in sustainable development financing and domestic resource mobilisation policies.
The risks of debt distress are increasing with average debt to GDP rates reaching a record high of 58 percent – not seen in the past 20 years. About 23 countries are either in debt distress or faced with high risk and further, analysis by AFRODAD has unravelled that the debt-to-GDP ratios of many countries had reached unsustainable levels. For example, Mozambique had attained 108.8%, Zambia-120%, Angola-95%. Worrisome to note is that these are resource rich countries. In addition, the G20 common framework was introduced in November 2020 to deal with the issue of unsustainable debt faced by various countries as an impact of COVID 19. Countries such as Zambia, Chad, Ethiopia and most recently Ghana have applied for debt restructuring under the G20 common framework after the government of Ghana in the last part of 2022 announced debt service suspension for a certain category of its debt. Zambia became the first African country to default on its debt during the pandemic, In addition, Zambia’s 2021 debt default has pushed its government to enter restructuring talks with private creditors and China Development Bank and a creditor community has been constituted to deal with this problem.
IMF reports and analysis show that countries like Chad, Republic of Congo, Sudan and Sao Tome and Principe are in debt distress. These countries external debt burdens are excessive, and the countries are incurring arrears.
African countries are floating Eurobonds to finance their development without appropriate policy and legal frameworks in place. The absence of legal safe guides make debt restructuring negotiations difficult as private lenders refuse to participate. As such, indebtedness remains a threat to the continent’s economic recovery, despite recent debt-relief initiatives, such as the Debt-Service Suspension Initiative that elapsed late 2021, the Common Framework, and IMF’s allocation of $650 billion-equivalent Special Drawing Rights.
Unsustainable debts threat to implementation of AfCFTA
The primary instrument of regional integration that has a direct impact on debt is trade expansion. Expansion of African regional trade generates incomes, employment through increased trade and growth. Trade integration reduces the need to borrow from outside. Trade revenue is sustainable and does not perpetuate dependence and indebtedness.
Trade and debt are directly linked in as much as trade performance, particularly exports, determines the ability of a country to service its debt. The debt-to-export ratio is a common measure of whether a country is likely to be able or unable to meet its debt payments. To solve the problem of indebtedness, a country either relies on debt cancellation, rescheduling or more importantly its ability to generate through trade the foreign currency required to pay its debts.
A major threat to African economic integration is poor debt management. External debts or loans have been badly invested and went into consumption. African countries exports are uncompetitive in global markets. African countries opt to trade with industrialized countries (67%) instead of intra-Africa (23%).
The primary instrument of regional integration that has a direct impact on debt. Expansion of regional trade generates incomes, employment through increased trade and growth. Trade integration reduces the need to borrow from outside. Trade revenue is sustainable and does not perpetuate dependence and indebtedness.
Trade is very importance for Africa. We are concerned that in recent years about 80% of exports from African countries were destined to non-African countries while about 79% of African imports were sourced from outside of the continent.
Africa largely imports manufactured products and export goods – fuel products, ores and metals, and food items. This current trade patterns have exposed Africa to commodity price volatilities and global shocks. The African Union and the African Continental Free Trade Area (AfCFTA) need to address this through helping countries develop national AfCFTA implementation strategies.
The AfCFTA is set to accelerate industrialization in Africa and increase the value of intra-African trade. The impact of the AfCFTA on intra-African trade is expected to impact countries differently based on their existing comparative advantages. African countries are extremely vulnerable to global shocks due to their current trading patterns and the AfCFTA must cushion countries from external shocks and bolster industrialization.
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- Urge the African Union to take leadership in demanding comprehensive debt restructuring for its debtor member countries.
- Call the African debtor governments and international creditors to urgently address unsustainable debts as they have undermined development progress in Africa.
- Engage with AU on why indebtedness remains a threat to the continent’s economic recovery, despite initiatives such as G20 Common Framework
- Call for improved transparency and accountability in the political, institutional and administrative processes in public debt management at all levels as recommended in the African Borrowing Charter.
- Unpack the role of trade in debt crisis – the AfCFTA is the AU theme for the entire 2023.
- Outcome statement to be handed to AU.
Moderator
Tirivangani Mutazu – AFRODAD
Speakers
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- Sylvester Bagooro – Third World Network Ghana
- Isaac Mwaipopo – Centre for Trade Policy and Development
- Bertha Phiri – Malawi Economic Justice Network
- SEATINI – Brendah Akankunda
- TJNA – Everlyn Muendo