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The Big Debt Question for African Countries in the context of COVID-19 pandemic

The novel COVID-19 virus which had Wuhan, China as its epicentre in November 2019, quickly diffused, ravaging the world and its epicentre changed to Iran, Europe and USA in the first quarter of 2020 becoming an unprecedented pandemic of our times since the Great Depression of 1929-1939.

As at 29 April 2020, the number of infections has reached slightly over 3 million people across the world according to the World Health Organisation (WHO). COVID-19 virus has killed over 200 000 people and is confirmed in 213 countries, territories and areas. As this pandemic has spread across the globe, Africa has not been spared. Two epicentres have emerged in Africa, North Africa in Egypt and Southern Africa in South Africa. What was seemingly a slow start in terms of spread due to a number of reasons but mainly due to lack state of preparedness and capacity to test, Africa now has more than 7,000 confirmed cases and 294 deaths across 45 countries and two territories as of April 7 according to the WHO records. This virus equally overwhelmed developed countries, who were deemed to have strong health services by world standards. There are fears, justifiably, that the impact of COVID-19 can be disastrous to sub-Saharan Africa – plagued by poverty, malnutrition and poor health services.

While the international community including the United Nations- in particular WHO, International Financial Institutions (IFIs) such as the World Bank (WB), International Monetary Fund (IMF) and the Africa Development Bank (AfDB) have been at the centre stage in coming up with response mechanisms and disease control packages, each country and government have been left looking inward in terms of deploying their context specific response mechanisms. It is at this level that the most important question of leadership has been tested. And the fallacy of a global village has been exposed. Each country has had to engage its own leadership skills, vigour and agility in responding to disasters, some inspiring while some leaving citizens in dejection.

Measures to combat the COVID-19 that have been set and encouraged by WHO are targeting flattening of the curve, which is reducing transmission and in a way saving lives and buying time for a cure or vaccine to be found. These measures to flatten the curve call on governments to implement comprehensive approaches and be able to prioritise isolating, testing and treating every suspected case, and tracing every contact as the best hope of preventing widespread community transmission. South Africa stands as an example in the SADC region in providing some level of thought out and inspirational leadership in combating the COVID-19 virus. Of course, this does not mask South Africa’s own challenges, particularly noting how an unequal society it is.

What has been clear is that strait jacket measures that have been adopted by most African and SADC countries, also cause serious financial and economic crisis which will leave poor countries in worse off conditions in Africa. The President of America, Donald Trump, has cautioned that the solution must not cause bigger problems than the challenge is a critical reflection point for Africa. Social distancing measures like lockdowns require vast resources and astute public financial management as the virus takes its toll not only on the physical being of humans but on the social and economic spheres as well. Sub Saharan African countries will be disproportionately affected by the impacts of COVID-19 on both the demand and supply side as countries implement such measures as social distancing; lock downs, working remotely and quarantines which all have economic disruptions. These disruptions that ultimately limit fiscal space for the already strained African governments and the ramifications are far reaching even at household levels.

The World Bank has estimated that Africa needs an initial $100 billion in financial support to respond to the COVID-19 virus. Challenges faced by Africa, largely, emanate from its major dependence on commodity exports that have been hard hit by sharp declines in commodity prices, trade, and tourism. All of which have been caused by country lock downs and investors shrinking back as a result of the foreseen and unforeseen risks of the COVID-19 virus. This has also pushed up the cost of borrowing in financial markets, limiting viable options for resource mobilization for most African countries.

To date the average fiscal support package announced by African governments amounts to a meagre 0.8% of GDP, one-tenth the level in advanced economies. Beyond the near term, the continent’s additional financing needs could rise to $200 billion, this is according to the Council on Foreign Relations. This means that there are huge fiscal deficits – World Bank has estimated output losses in sub-Saharan Africa of between USD34-79billion due to COVID-19. All this is happening at a time when underfunding in public health is shocking. Massive investment in health infrastructure like ICU bed, ventilators, testing equipment, dwarf enhanced capacities and protection of the health workers is much needed. Water and Sanitation (WASH) infrastructure is gloom with One-third of Africans who cannot wash their hands regularly, because they lack access to clean water. The World Bank posits that, the impact on household welfare is expected to be equally dramatic, with welfare losses in the optimistic scenario projected to reach 7% in 2020, compared to a non-pandemic scenario.

The reasons for this are threefold; firstly, it is the lopsided budgetary allocations that have prioritised procurement of weapons of war the world over. In Africa Ministries of Defence get the biggest chunk of most national budgets. This crowd out finance for public healthcare systems that must respond to epidemics and pandemics both modern like COVID-19 and medieval such as Cholera and Typhoid. Political leadership opt for medical attention abroad. Ordinary citizens are left to rely on the dilapidated public hospitals that continue to receive minimal priority when it comes to budgetary support. Health services are getting less than the 15% of the total budgetary support, contrary to the 2001 Abuja Declaration. African leaders, through Abuja Declaration, committed to support national health care systems to the tune of 15% of their overall budgets. Per capita public spending on health still has a glaring gap compared to developed countries. To compound matters, the funds allocated to health get sucked into the vortex of corruption and misapplication of public funds for non-essentials.

Secondly, the Economic Structural Adjustment Programmes (ESAPs) and the rolling back of the state in public service provision of the 1990s meant that most African governments’ role to provide public services was minimised. Much of this role was offloaded to the private sector through privatisation. The public sector was left heavily dependent on donors as the African governments also went on their napping on duty expedition. Countries that went through the Highly Poor Countries Initiative (HIPCs) and Multi-Lateral Debt Relief Initiative (MDRI) for debt relief are also facing the same fate of the emasculation of the states’ capacity to provide essential services to citizens. Therefore the role of the global village terms and conditions for cooperation are equally exposed.

Thirdly, our African leadership after political independence never invested in building strong institutions beyond personalities to nurture and entrench accountability and respect for human rights and dignity. This means that key institutions such as Parliaments, Anti-Corruption Commissions, National Prosecuting Authorities, and National Audit Offices have not been deliberately developed to be innovative in times of crisis to play their oversight role in many Africa countries. Civic space for civil society has continues to be shrunk and in some countries even closed thereby marginalisng the citizen voice in challenging the looting of resources from Africa by the ruling elite in cohorts with business and the opacity in debt contraction processes.

While the impacts of COVID-19 are unfolding, with severe shocks on the African Health Care Systems, the major impacts on the African economy are to be endured by the citizens for a long time. Citizens have to make tough choices between dying of the disease or of hunger while they stay at home in lock downs in highly informalised economies. This is so because our urbanisation has not been driven by better opportunities in urban areas but only urbanisation of poverty as the rural masses run away from the worse off conditions in rural Africa. Governments must manage the tensions within very limited fiscal space to exercise fiscal discipline. But at the same time being luminaries in developmentalism as every temporary shock calls for a capable and activist government to protect and extend shock absorbers to its citizens.

This pandemic is ravaging economies in the context of many African countries and specific to SADC being saddled in huge public debts. Some countries like Zimbabwe and Mozambique already in debt distress while Zambia is starring debt distress, just to mention these three interesting cases. Zambia and Mozambique are beneficiaries of the HIPC Initiative and Zimbabwe having been a big defaulter and has been failing to crack the international re-engagement nut since 2015 with its LIMA Arrears Clearance Strategy. Most SADC countries have gross national debts in the regions of 70% of their GDP which is above the regional debt threshold of 60% and the IMF calls any debt above 60% thresholds “uncomfortable”.

With this worrisome debt sustainability levels, the COVID- 19 pandemic will only exert more pressure as governments have to introduce supplementary budgets amidst shrinking revenues and rising demand for governments to intervene and activate the activist economies to curb the social and economic impacts on citizens. Governments are seemingly presented with a ‘rationale’ for borrowing. This means rising public debt both domestic debt and external debt and as alluded to earlier these debts are likely to be very expensive. The obligations to repay existing debts remain, crowding out the required resources for public services in this crisis time.

The international community is fully alive to the difficulties being faced by African governments in these times and have in some way shown up and offered debt bail outs. For example, recently, the IMF approved immediate debt service relief to 25 of the IMF’s member countries under the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT) as part of the Fund’s response to help address the impact of the COVID-19 pandemic. The CCRT can provide about USD 500 million in grant-based debt service relief including USD 185 million from the UK and USD100 million from Japan. 18 of the 25 countries are from Africa and 4 are in the SADC region.[1] The African Development Bank recently issued a $3 billion “Fight COVID-19” social bond, while the African Export-Import Bank has set up a $3 billion credit facility, the World Bank has extended a USD6 billion facility financing for health system strengthening and disease surveillance (this US$6 billion is part of a wider fast-track package worth US$14 billion). The G-20 recently called for a coordinated collective response to assist the world’s most vulnerable countries, pledged to provide immediate resources on a voluntary basis, and instructed finance ministers and central-bank governors to develop an action plan. Other International organizations such as, the United States Agency for International Development, the Global Fund, and Gavi, the Vaccine Alliance among others have all announced programs to support developing countries.

Therefore, the question of debt relief is one that African governments, the creditors and civil society organisations cannot shun. The debt question is a big component in the mix of options and has to be genuinely tackled. Debt moratorium is critical to alleviate the social and economic impacts of COVID-19 on the vulnerable African citizens. They rely on public services and are not productively employed. The majority of citizens are absorbed in the informal sector and unpaid care work in the case of women all across Africa. African governments and creditors must engage on this issue as the need for debt moratorium is undeniable. But there is also the genuine fear of corruption and supporting bad governance which has been in the DNA of most on our governments. Our government must be willing to take full responsibility and put in place genuine mechanisms for the planning, delivery, monitoring and evaluation of the COVID-19 resources unlocked from the debt moratorium and international development cooperation.

There are three things that governments and creditors have to commit to in order to make the debt moratorium call by African governments bring hope to the masses in Africa and these are;

  1. Urgent strengthening of transparency and accountability institutions- these include audit offices/agencies; Parliament, Debt Management offices, central banks, National Prosecuting Authorities among others. In the SADC region Zambia and Zimbabwe were caught up by the COVID-19 pandemic crisis in the midst of trying to chop parliamentary oversight role through Bill Number 10 and Constitutional Amendment Bill Number (2) respectively.
  2. There must be transparency in terms of the debt moratoriums to African countries on the process, procedures for debt cancellation and postponement or waiver of debt repayments. Resources freed up from the debt moratoriums must be invested to tackle the urgent health and other related social and economic rights such as provision of water, education and alleviate the social and economic crises resulting from the COVID-19 global pandemic.
  3. Widening the scope for domestic resource mobilisation as an alternative to borrowing in order to fund national budget deficits that must be pursued post COVID-19

To conclude, the COVID-19 pandemic has brought with it many challenges, shocks and lessons for the governments at national and global level, citizens and non-state leaders. It is important to move from the state of shock to action. Everyone must play their role, but most importantly, the State must rise to the occasion and build on humane, democratic economic governance and human rights based flanking policies to the globally prescribed packages in addressing disasters of this nature. The need for functional accountability institutions cannot be over emphasised. Parliaments are suspended and they are going to wake up to having to condone huge public debts and unapproved expenditures. Human rights bodies will be representing weak citizenship that take orders from their governments or risk facing the harassment from the state security. Workers will be facing new methods of working and businesses will be nursing their financial wounds. It is not going to be EASY especially for an ordinary citizen who depends on their government for a livelihood and the reeling effects of debt will be enormous if not countered by visionary and futuristic leadership.

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