The World Health Organization (WHO) in March this year declared the new COVID –19 virus a pandemic after the cases outside China increased exponentially in a rather meagre amount of time. During his address, Dr. Tedros Adhanon director general of the WHO urged governments to take “urgent and aggressive action” which saw most countries’ authorities worldwide reducing man power in public administrations to the bare minimums, freezing public and private transport, closure of certain businesses like commercial centers and others of public character in a bid to curb the spread of the virus.
In Africa and the world at large the effects of the spread of the virus and the measures taken by authorities have left health systems struggling and thrown economies into recession characterized with declines in export and fiscal revenues,dysfunction of capital and commodity markets, stalls in international trade and quasi unemployment of people especially those in the informal sector that form 89% of the continent’s workforce.
With the GDP of Africa projected to narrow by 1.6% according to projections by the International Monetary Fund (IMF), the debt dependency of African countries to finance public and private investment coupled with reduced exportations has rendered both governments and their people unable to honor their debt payment arrangements with the different financial institutions hence necessitating debt relief arrangements where the parties involved can renegotiate interest rates and due dates of old debt and also acquire new emergency debt majorly aimed at sustaining their economies and developing the already strained health systems.
After 44 countries formally asking for assistance, the IMF through its Rapid Credit Facility, Rapid Financing Instrument says it can provide close to US$19 billion in financial assistance and its board enhanced the Catastrophe containment trust to provide grants for upcoming debt service to the poorest countries majority of which come from the African continent. Members now have the capability of accessing 100% of their quota annually. Furthermore, the World Bank is set to provide US$55 billion in budgetary support to Africa that shall be used to relieve the health systems, put in place social protection programs and address fiscal needs. Support to the private sector is to be availed by the International Finance Corporation and the Multilateral Investment Agency (MIGA) through the world bank fast track facility totaling up to a tune of US$ 14.5 billion combined.
The G20 with which Africa possesses a debt of close to US$ 6 billion in just interest and close to US$ 16 billion to private creditors, after a virtual meeting recently held by its respective finance ministers and the central bank governors together with some African delegates decided to suspend debt payment effective May 1st 2020 to the end of the year. Other institutions like the African development bank also chipped in to alleviate the impacts of the crisis and pledged US$ 8.1 billion in addition to the US$5 billion committed by the European union to the cause.
The efforts made by the international community for Africa are impressive but in the context of the African states it is more of economic procrastination than relief per say and this is why. The above debt relief arrangements worsen the deficits in the balance of payments and the national budgets, increase the tax burden on citizens, and lead to dependence of African states’ economic policies and objectives on those recommended by the creditors so as to repay their debt. African authorities after the crisis has subsided will have to focus on policies that stimulate and diversify their production functions, increase private sector investment, widen the tax base, avoid unnecessary government expenditure, and promote value addition to products for exportation so as to raise foreign exchange reserves to service debt accrued and also promote sustainable and inclusive development.
In conclusion, the significance of the above debt relief arrangements cannot be overlooked however the question of the efficacy in the affectation of the received resources to the required sectors and the effective implementation of the required policies to service this debt sustainably and still achieve economic growth and development by the African governments rests a debate.
Monetary & Banking Economist
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