Despite the challenging posed by the devastation of the global pandemic and external economic shocks, Africa’s economy would still recover from its worst recession in 50 years and to reach 3.4 percent growth in 2021, the African Development Bank (AfDB) said in its 2021 African Economic Outlook report, launched on Friday.
The outbreak of the novel coronavirus in December 2019 took a devastating toll on Africa, with tourism-dependent and commodity exporting and other-resource intensive economies the hardest hit, resulting in the deepening of societal inequalities.
The 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, proffering mitigating measures to governments and policy makers.
The continent-wide projected recovery, following a 2.1 percent contraction in 2020, the report said, does not remove the threat of increasing poverty.
Following about 30 million Africans who were pushed into extreme poverty in 2020 as a result of the pandemic, the report said an additional estimated 39 million could possibly slip into extreme poverty this year.
The report found that populations with lower levels of education, few assets, and working in informal jobs could be the most vulnerable if not protected.
AfDB Vice President and Chief Economist Rabah Arezki who presented the report during a virtual launch ceremony, 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.
In 2020, the report said government spending across Africa skyrocketed as countries strived to support their populations through the pandemic.
This intervention, it noted, negatively impacted on budgetary balances and debt burdens, with the average debt-to-gross domestic products (GDP) ratio for Africa expected to climb by 10 to 15 percentage points in the short to medium term, fueled by the surge in government stimulus spending and the contraction of fiscal revenues as a result of COVID–19.
Also, it said, the situation would result in fast-paced debt accumulation in the near to medium term. The report said although the average debt to-GDP ratio had stabilized around 60 percent of GDP, recent debt restructuring experiences in the continent have been costly and lengthy because information asymmetries, creditor coordination problems, and the use of more complicated debt instruments.
AFDB’s response to the pandemic
The report noted the swift reaction by the AfDB to the COVID-19 pandemic challenge through a crisis response mechanism 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.
However, the AfDB President, Akinwumi Adesina said 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.
On recommendations for a multi-pronged policy approach to addressing the pandemic, the report called for the supporting of 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; and expanding social safety nets and making growth more equitable.
The report also called for minimizing the long-term implications of the pandemic on human capital accumulation by opening schools and scaling up active labor market policies to retool the labor force for the future of work through digitalization, industrialization, and diversification.
Director of the African Development Bank’s Macroeconomic Policy, Forecasting and Research Department, Hannan Morsy, said: “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 said.