The World Bank’s Africa Head Economist, Andrew Dabalen, has disclosed that the long-term outlook for Africa’s debt sustainability remains “cloudy” as low growth and rising inflation threaten the viability of several African economies.
One of the most serious concerns, according to Andrew Dabalen, is the onset of stagflation. According to him, growth is expected to reach 3.1% in 2023, while inflation will be in the double digits in several regions of the continent.
World Bank’s Head Economist further disclosed that almost half of the countries in sub-Saharan Africa are in debt distress or at high risk of being in debt distress.
Although Andrew Dabalen cautioned that changing global economic conditions continued to present risks to that outlook, he said; “We don’t expect the number to grow beyond what we have now.”
Zambia was the first African country to default on its debt in 2020, followed by Ghana late last year. Chad finished talks with its creditors under the G20’s Common Framework procedure in November without achieving a debt reduction, while Ethiopia’s talks were hampered by a civil conflict.
According to Dabalen, the Common Framework debt restructuring negotiations for Zambia “keep dragging on”, and that the process should be equitable for all creditors.
He further noted that many countries are taking the necessary steps to implement reforms that would better serve their long-term objectives, adding that domestic reforms would always be superior to those imposed on them by international funders.
“A significant number of countries on the continent are in the unique position of having the mineral resources necessary for the low-carbon future.
“A lot of the minerals in demand come from mostly African countries. So, they can really try and maximize revenues to build different kinds of economies that are industrialized.”
Andrew Dabalen
World Bank Warns Ghana, Others Of Government Debt Distress Impact On Economy
Meanwhile, it can recalled that the World Bank in its January 2023 Global Economic Prospects report warned Ghana and some Sub-Saharan African countries that, government debt distress would have large adverse spillovers on growth and financial stability, where banks will be heavily exposed to sovereign debt.
According to the report, Ghana, Kenya and Sierra Leone, in particular, would have adverse effects of the financial challenges on their economies due to their worsening debt situation.
It stressed that increased non-concessional borrowing in the Sub-Saharan Arica region could cause a sharp rise in debt service costs if global interest rates keep rising.
The World Bank further said the baseline projections remain subject to multiple downside risks amid continuing uncertainty about the war in Ukraine, the degree of global and domestic monetary tightening that will be needed to subdue inflation, among others.
It concluded that “policy tightening across SSA may have to pick up pace if price pressures persist or if risks of debt distress are increased by higher global interest rates and currency depreciations”.
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