ABSTRACT
The COVID-19 pandemic has heightened Africa’s debt vulnerabilities and exposed the inadequacies of the global financial architecture to address systemic financial shocks. While the pandemic was not the underlying cause of these vulnerabilities, the asymmetric responses by advanced and developing countries threaten to widen inter-regional inequalities and accelerate economic migration. On the one hand, the unlimited reserve currencies held by advanced countries strengthened their fiscal response to the crisis. In contrast, the response measures of African and other developing countries were confined to their limited fiscal buffers and international support measures notably the Debt Service Suspension Initiative, the Common Framework, funding from multilateral Development Banks and the new general allocation of Special Drawing Rights (SDRs) by the International Monetary Fund (IMF). Notwithstanding the pervasive impact of the pandemic, these measures have focused on a limited set of countries and, in the case of SDRs, have disproportionately benefitted advanced countries. This chapter examines the drivers of Africa’s debt vulnerabilities, examines the effectiveness of global response measures and calls for stronger public and private blended financing approaches to address the development financing needs of Africa. It argues that on current trends, bilateral and multilateral financing is inadequate to fill the continent’s financing gap. Meanwhile, for countries with access to capital markets, the cost of private financing is too high to ensure debt sustainability. Going forward, improving domestic financing and de-risking private financing through the blending of public and private resources will be important to close the continent’s financing gap and ensure more effective fiscal responses to future shocks.
