SAIIA policy brief by Mavis Owusu-Gyamfi is the Executive Vice President of the African Center for Economic Transformation (ACET) and Richmond Commodore, Research and Policy Analyst at the African Center for Economic Transformation (ACET) in Ghana.
Having been pummelled by the effects of COVID-19, developed and developing countries are pursuing strategies to accelerate their recovery process and to bolster their health systems and economies against future crises. However, significant fiscal constraints are making it difficult for many developing countries to finance their recovery processes. This is particularly evident in Africa, where governments – having exhausted their more liquid domestic assets – often have had to tap their sovereign wealth funds, international capital markets and other external development finance options, exacerbating their already-high public debt levels. African countries need substantially more development finance to tackle current and future economic challenges. However, up until COVID-19, flows of donor finance to Africa had been on the decline for some years. Borrowing from international capital markets is not always a cost-effective route for African countries to follow. Many African governments have been calling for debt cancellation and other forms of relief, but to no avail.
The efforts of the G20, International Monetary Fund, World Bank, African Development Bank and African Union, among others, have provided essential lifelines to African countries as they have navigated the worst of the pandemic. The G20’s Debt Service Suspension Initiative and the International Monetary Fund’s Common Framework are just two examples of such initiatives. Generally, however, global donor activities and frameworks have been fragmented and poorly coordinated. The G20 and other development partners can do more to streamline and coordinate their financial assistance and debt relief efforts in Africa. Priorities include unlocking much more finance to accelerate countries’ economic recovery and longer-term transformation (especially private-sector investment), making capitalmarket borrowing more accessible to African countries, and extending more generous debt relief in exchange for African countries engaging in better fiscal management.
Development partners should reallocate resources earmarked for public investment to de-risk private projects in Africa to spur economic recovery.
The G20 should consider partially cancelling African countries’ debt, extend the Debt Service Suspension Initiative (DSSI) for another two years and ensure that borrowing countries pace their debt payments to prevent being overwhelmed by an untenable debt burden upon the expiry of the DSSI.
The Paris Club should prioritise bringing commercial creditors and new actors to the table and build a fair and transparent multilateral framework to address and resolve Africa’s potentially unsustainable debt burden.
G20 partners should work with other countries to explore the feasibility of establishing independent, publicly owned credit rating agencies to afford African countries more transparent and fair credit ratings.
National governments should establish donor coordination frameworks which will ensure that development finance support programmes are aligned behind a single national plan and traditional and non-traditional donors are able to collaborate with one another.
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