GDP in sub-Saharan Africa could contract by 2.8% - World Bank cautions

GDP in sub-Saharan Africa could contract by 2.8% - World Bank cautions
  • Falling revenue heightens debt-crisis risks for the continent
  • Rising debt bill in Africa stifles funds for infrastructure
  • Nigeria spent seven times more on debt than new bridges and highways in the first quarter
  • Ghana’s interest payments in the first four months of the year were the highest since at least 2016.
  • Sub-Saharan Africa’s external debt-service bill over $36.6 billion in 2020, according to the Institute of International Finance.
  • Interest costs are consuming a bigger share of revenue in Africa

 

The silent killer - As export and tax revenue decline due to subdued global demand and domestic activity, debt costs are eating up a larger share of countries’ income in a region that already spends less than any other on infrastructure.

After 25 years of uninterrupted economic growth, gross domestic product in sub-Saharan Africa could contract by 2.8% this year, according to the World Bank.

Africa’s Rising Debt Bill is off the charts

And unlike richer countries that can afford to pour money into their economies, African governments need to take on more expensive debt to deal with the economic fallout from the pandemic.

 “The cost of servicing the debt, and the debt overhang, will make a recovery difficult,” Gyude Moore, Liberia’s former minister of public works and senior fellow at the Center for Global Development, said by email.

The Group of 20 leading economies’ debt-relief initiative is stuttering

Since launching in April, 13 of the 73 eligible countries have been granted a suspension and multilateral lenders and private creditors have been hesitant to participate.

Senegal’s government said Wednesday it’s started talks with bilateral creditors to delay about $156 million in payments this year, or about 14% of its external debt service.

With help not forthcoming and an increase in spending to mitigate the pandemic would precipitate an economic crunch.

That could deter fresh investment and financing, jeopardizing the World Bank’s projection for a rebound to 3.1% growth next year.

| If oil prices remain low, debt costs in Nigeria, the continent’s top crude producer, could consume 96% of government income this year, according to a report by Maplecroft. Interest payments for Angola, the No. 2 producer, could eat up all revenue in 2020, the International Monetary Fund said last June.

“Perhaps this crisis is going to be a wake-up call for policy makers across the continent to make steep changes in their efforts to transform economies,” said Dirk Willem te Velde, a research fellow with the Overseas Development Institute.


| Social expenditure also loses out to rising debt costs. Government spending on public services in sub-Saharan Africa dropped by 15% between 2014 and 2018, according to the European Network on Debt and Development.

Opinions

Adedeji Adeniran, a senior research fellow at the Abuja-based Centre for the Study of the Economies of Africa.

African governments have “shrinking fiscal space as revenues are falling,” said “For countries with very high external debt which is maturing this year, the debt crisis will be immediate.”

In South Africa, debt-service costs will grow faster than any other spending category over the next three years and in Kenya and Ghana governments will spend more on debt than on infrastructure, health or education.

 

Vaultz Economic Analyst

Most of the expenditure now go into combating the virus which should have been invested in the other sectors of the economy. For instance, the cost of testing is also a major concern as estimate indicated that it cost about $100 per test in Ghana. Also, the amounts spent on people who are quarantined; accommodation, food, and staff time (nurses, doctors) which cannot be quantified because it’s more of an opportunity cost.” 

 

Read Also: A WORLD DIVIDED OVER CORONAVIRUS: ECONOMY OR HEALTH?