AfDB projects 3.4 pc growth for Africa’s economy this year

THE African Development Bank (AfDB) says Africa’s economic growth prospects are positive with a 3,4 percent projection this year despite the Covid-19 challenges and debt burden facing most economies on the continent.

In its 2021 Economic Outlook report launched last Friday, the regional financier noted that the economic impact of the pandemic varies across economic characteristics and regions, but the projected recovery is broad-based.

“Despite the challenging backdrop of a global pandemic and external economic shocks, Africa is expected to recover from its worst recession in half a century and reach 3,4 percent growth in 2021,” said AfDB.

The average debt-to-Gross Domestic Product (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 governments spending and the contraction of fiscal revenues as a result of the contagion.

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 African Economic Outlook, published annually since 2003, provides headline numbers on Africa’s economic performance and outlook. AfDB said this year’s theme “From Debt Resolution to Growth: The Road Ahead for Africa”, highlights the impact of Covid-19 and government debt, offering mitigating measures to governments and policy makers.

“The continent-wide projected recovery, following a 2,1 percent contraction in 2020, does not remove the threat of increasing poverty,” the report said.

“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 should be protected.

Presenting the report during a virtual launch ceremony, the bank’s vice president and chief economist Rabah Arezki was quoted cautioning 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,” he warned.

In 2020, government spending across Africa the 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.

This will result in fast-paced debt accumulation in the near to medium term.

“Although the average debt to-GDP ratio had stabilised around 60 percent of GDP, recent debt restructuring experiences in Africa have been costly and lengthy because information asymmetries, creditor coordination problems, and the use of more complicated debt instruments,” said AfDB in the report.

In response to Covid-19, AfDB reacted swiftly, 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 United States dollar-denominated social bond ever.

However, AfDB president Dr Akinwumi Adesina was quoted saying the fundamentals of Africa’s debt burden must be prioritised and not ignored.

“The bank made a strategic and forward-looking choice to discuss a topic that could become a key policy concern in the near term.

“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,” he said.

The AfDB report makes 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.-ebusinessweekly.co.zw