COVID-19 and Africa’s growing debt
Africa currently has over 1.6 million COVID-19 cases and over 39,000 deaths. While these numbers are high, they do fall short of the grim predictions made by experts earlier this year when the pandemic began. Compared to the U.S. where there are currently over 8 million cases and over 218,000 deaths, Africa is doing much better. Africa has been praised for its fast and targeted action against COVID-19 and the tremendous leadership of national governments and regional organizations like the African Union and the Africa Center for Disease Control. While Africa has achieved a degree of success in managing its COVID-19 cases, that does not mean that the pandemic has not affected its fragile economy and an already-overwhelmed healthcare system.
The continent’s economy has taken a hard-hit due to the pandemic, with the World Bank predicting Sub-Saharan Africa’s economy will contract by 3.3.percent. The World Bank also predicts that COVID-19 will push upwards of 150 million people into extreme poverty, with roughly a third of the extreme poor expected to be in Sub-Saharan Africa. According to Dr. Raymond Gilpin, Chief Economist at the United Nations Development Programme Africa, COVID-19 has so far been responsible for the loss of $500 billion in exports, $200 billion in income, and $4.2 billion in foreign direct investment. Dr. Gilpin said that COVID-19 in Africa is reversing three decades of growth, which means that 75% of non-formal jobs are at risk of being lost, 168 million Africans cannot afford their pre-COVID levels of food intake and over 30 million Africans are being pushed back into extreme poverty.
Perhaps the most devastating effect of COVID-19 on the continent is its worsening effect on the debt crisis. Rising costs associated with COVID-19 and decreased revenues have forced African governments to continue borrowing, compounding their existing debt. Unlike the U.S., which has the financial resources to give out millions in stimulus checks, African countries are forced to borrow billions from international financial organizations and private creditors to stay afloat. In April, the IMF and the World Bank along with the G-20 finance ministers announced the Debt Service Suspension Initiative (DSSI), an effort to help poorer countries that are under dire financial constraints. The DSSI does not forgive debt payments, but provides a delay in their payment. On Wednesday, the G-20, representing the world’s biggest economies, announced that it would be extending the suspension of debt payments for poor nations until June 2021, giving them time to focus on their efforts to handle COVID-19. While suspending debt payments certainly gives African countries a breathing room for the time being, it does not save them from the huge amount of debt they are drowning in. Countries like Zambia are already on the brink of defaulting on their debt payments, raising alarms that more African countries will follow suit.
As a debt crisis looms, there has been a growing demand from various advocacy groups for debt cancellation and the issuance of Special Drawing Rights (SDRs) from the IMF. According to the Advocacy Network for Africa (AdNA), the SDRs are the IMF’s reserve currency that could “enable countries to boost reserves and stabilize economies, helping minimize other economic losses, without any cost to the U.S. government.” Although SDRs offer African countries a lifeline, the U.S. has yet to support the initiative, adding yet another hurdle in their attempt to break free from their debt trap. In addition to advocating for SDRs, organizations like the Jubilee Debt Campaign (JDC) are also urging the IMF to sell its stockpile of gold to cancel the debt of the poorest countries. According to JDC, the profit from selling less than 7% of IMF’s gold (worth $11.8 billion), “would be enough to pay for cancelling all debt payments by the 73 countries eligible for the G20 Debt Service Suspension Initiative for the next 15 months” and “would still leave the IMF with $26 billion more gold than the institution held at the start of 2020.”
The efforts of debt-cancellation advocates seem to continue to fall on deaf ears, as the IMF and the World bank refuse to make any move towards cancelling the debt of African countries. The Bank’s hypocrisy is observed in the fact that it continues to pressure China, Africa’s largest creditor, to cancel its debt to poor countries while itself has yet to cancel the debt it is owed.
If, as per IMF predictions, Africa will need $1.2 trillion in financing through 2023, it will take more than temporary debt suspension to ensure that the economies of countries can survive. The IMF and the World Bank must act before it is too late for countries to escape this debt trap. The U.S. must support SDRs and do its part in supporting the recovery of poor countries. The IMF and the World bank needs to cancel the debt of African countries, and work with national governments and advocacy groups like the African Forum and Network on Debt and Development (AFRODAD) to create new policies on debt management and development finance that contribute to inclusive economic growth and protect African interests.
African countries deserve economic freedom following years of colonization and neo-colonialism — it is time for the world to help them achieve that.