- Lack for donor support and institutional support would pose significant fiscal challenge to all African countries in their effort to revive the economies.
- Debt relief should be major assistance that the donor nations and institutions shod do for these cash strapped countries due to pandemic hit economy.
The long and arduous health care challenge posed by the pandemic Covid 19, has given critical challenges to African countries economy and the recovery from its deleterious effect may take more time than expected. One of the factors that hamper the growth would be the fiscal constraints faced by many countries in the region. Governments are already facing acute financial situations – 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. To add things worse, the aid from the donor countries is drying up drastically and Institutional support is also narrowing down. The IMF and World Bank assistance also has been declining over the 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.
There were some assistances that came but that alone is not sufficient for Africa to bounce back to full economic recovery. The G20’s Debt Service Suspension Initiative and the International Monetary Fund’s Common Framework have given some element of comfort to the region but more to be done. The global donor activities and assistance are not a consistent medium of support and most of them fragmented. The G20 and other institutions need to do more streamlining and give more access to the debt relief assistance to the African countries. Priorities include unlocking much more finance to accelerate countries’ economic recovery and longer-term transformation (especially private-sector investment), making capital market borrowing more accessible to African countries, and extending more generous debt relief in exchange for African countries engaging in better fiscal management. The assistance from China is basically project based assistance and the liability of repayment would be a challenge for the African countries.
During such a crisis and lack of support, the fiscal crisis would be looming large to many African countries. Although the World Bank noted that fiscal deficits remained under control in 2020 and are expected to narrow in 2021 and beyond, the size of the fiscal support measures deployed by African governments has been very small compared with those in advanced economies. While advanced economies mobilised about 6% of their gross domestic product (GDP) to tackle the impending recession, African countries barely mobilised 1% in response to the crisis. This is going to put pressure on governments in the region and the recovery will be more time consuming than what has been expected.
