Africa to seek increased lending due to COVID-19

African countries are expected to seek increased lending from multilateral partner banks to adequately respond to the COVID-19 pandemic despite the continent’s already heightened debt levels, the United Nations Economic Commission for Africa (ECA) said on Tuesday.

The ECA estimated that Africa’s output losses due to COVID-19 will soon be just under 100 billion U.S. dollars and would result in the significant reversal of gains made to fight poverty in the past few years and push nearly to 30 million people into poverty.

“While developing countries have injected trillions of dollars into social safety nets, healthcare support and economic stimulus responses, Africa has lacked the fiscal space to respond similarly,” an ECA statement said.

The ECA said that Africa faces four combined challenges of heightened debt levels currently estimated to be about 69 percent of GDP, high fiscal deficit of an average of 8.7 percent of GDP, high borrowing costs, and currency depreciations against major currencies.

Despite African countries’ increased need for lending, the ECA stressed that the continent is presently under pressure to keep up payments on debt service and avoid stigmatization in financial markets associated with debt relief.

As a proportion of GDP and of export earnings, Africa’s debt of about 544 billion dollars is the highest of any developing region, according to recent ECA figures.

Noting Africa’s high debt impedes public investment in infrastructure and human development, which in turn deters private investment, the ECA warned that the shape of the economic recovery in Africa will depend on down-side risks, including potential emergence of financial crises and debt instability mainly due to weakened economies.

The ECA’s statement came in line with a newly launched initiative, dubbed Liquidity and Sustainability Facility (LSF), that envisaged servings as a vehicle for debt management and fiscal sustainability to help facilitate sustainable growth in Africa.

The LSF is estimated to save African issuers 11 billion dollars in interest costs over a five-year period, the statement said. The ECA said the initiative would pave the way for the global community to assist African policymakers in restarting and reimagining sustainable growth, which include introducing innovative financing tools such as bonds linked to the pursuit of the sustainable development goals.

The LSF is expected to assist African countries by strengthening their liquidity in the short term and restart growth in the longer term.

According to the ECA, in a bid to meet their growing development financing needs, African countries have borrowed from private creditors that changed their debt landscape during the last decade, with private debt assuming a little over 40 percent of its total debt stock.

The interest rates on Africa’s private debt is restrictive and necessitates a facility such as the LSF, said the ECA.

It stressed that the LSF’s governance will be aligned with public good mission and its adherence to the highest standards of transparency.

Xinhua News Agency