AfDB President, Nobel Memorial Prize Winner Call for Quick, Full African Debt Restructuring

March 16/2021(ENA) Recipient of the 2017 World Food Prize, African Development Bank (AfDB) President Akinwumi Adesina, and recipient of the 2001 Nobel Memorial Prize in Economic Sciences, Professor Joseph E. Stiglitz, have called for a quick and comprehensive plan for debt restructuring in Africa.

Africa’s collective debt now stands at 70 percent of the continent’s Gross Domestic Product (GDP), it was learned.

Speaking at the launching of the African Development Bank’s 2021 Economic Outlook, Adesina urged African governments to consider collectively establishing an African financial stabilization mechanism which would give Africa the fiscal space it needs to deal with debt.

“It is high time that we set up a homegrown financial stability mechanism where we work together to mutualize our funds and ensure we avoid the spillover effects that come from global pandemics or any external shocks,” he noted.

This should start by making sure that countries carry out the macroeconomic policy reforms and the fiscal policy reforms that they need to get done, the president said, adding that Africa “is not looking for a free pass. We are just looking for an equitable way in which Africa’s fiscal space gets dealt with.”

According to the African Economic Outlook, the share of commercial creditors in Africa’s external debt stock has more than doubled in the last two decades, from 17 percent in 2000 to 40 percent by the end of 2019.

Some hope has come in the form of new special drawing rights, potentially 500 billion USD that the International Monetary Fund could issue, in accordance with the G20's recommendation at the end of February.

The president stressed that these funds will “go a long way” to stabilizing foreign reserves and the exchange rate, allowing countries to handle debt and re-engage in massive pro-growth investments that will help them to quickly recover from the COVID-19 pandemic.

Professor Joseph E. Stiglitz said on his part “you need debt restructuring, and that needs to be really high on the international agenda. Every country has bankruptcy laws but there’s no bankruptcy law for international debt. When there’s too much debt, it’s as much the creditor’s problem as the debtor’s problem.”

What needs to be done with debt is comprehensive and quick restructuring, he stated, pointing out that “we don’t want to fall into the trap of doing too little, too late.”

Stiglitz’s proposal calls for an international debt framework that includes the private sector, given its growing role as a source of government debt.

The 2021 edition of the African Economic Outlook estimates that Africa’s GDP contracted 2.1 percent in 2020, the continent’s first recession in half a century.

GDP is projected to grow by 3.4 percent in 2021 while the report estimates that African governments will require additional gross financing of about 154 billion USD in 2020/21 to respond to the COVID-19 crisis.