Public Debt and the Need of a Regional Financial Mechanism for Africa

African countries were severely hit by the dual shock of the COVID-19 pandemic and the fall in commodity prices. This shock drove the continent quickly into its worst recession in fifty years. According to the 2022 African Development Bank African Economic Outlook (AfDB AEO), real GDP declined to −1.5% in 2020 from growth of 3.3% in 2019. Yet, Africa recovered quickly from the recession. The continent’s GDP grew by 4.8% in 2021 and slowed to 3.8% in 2022. Growth is projected to rebound to 4.0% in 2023 and increase further to 4.3% in 2024, reflecting the strong growth in oil-exporting countries attributed to the recovery in oil prices and demand, combined with the strong recovery in private consumption and gross investment after restrictions were eased, and the continent’s continued resilience to shocks. But the continent’s economic take-off is held back by a debt overhang crisis, risking turning its bright future into another “lost decade’’. Africa’s debt burden has grown significantly in the past 15 years. Since the 2008 global financial crisis, the aggregated debt-to-GDP ratio of the continent has surged by 39.3% points between 2008 and 2020. The pandemic pushed the continent’s indebtedness from 60% of GDP in 2019 to more than 70% in 2020. The international community reacted by putting in place a Debt Service Suspension Initiative (DSSI). To address the need for more substantial debt relief, the G20 has introduced the Common Framework for Debt Treatments to facilitate debt relief, including by the private sector. Yet, these two initiatives have not proven up to Africa’s new debt challenge. This chapter presents Africa’s new wave of debt crisis, and the new debt resolution framework. It then calls for the setting up of a Regional Financial Safety Net (RFSN) for the continent.