Debt Dynamics and Financial Stability in Africa

Emmanuel Pinto Moreira

No 2325, Policy briefs on Economic Trends and Policies from Policy Center for the New South

Abstract: African countries were severely hit by the COVID-19 pandemic, which quickly drove the continent into its worst recession in fifty years. According to the 2022 African Development Bank African Economic Outlook (AEO), real GDP declined by -1.5% in 2020 compared to growth of 3.3% in 2019. Africa has recovered quickly from the recession, but this has not translated into favorable debt prospects for many countries. To make a challenging situation even worse, the Russia/Ukraine crisis has cast further doubt on prospects for debt sustainability in Africa. The international community has reacted to these events by putting in place a Debt Service Suspension Initiative (DSSI). To address debt needs further, the G20 has introduced a Common Framework to facilitate debt relief, including from the private sector. These two initiatives have not proven sufficient to meet Africa’s debt challenge. Africa thus would benefit from the introduction of a financial stability mechanism that would work with countries to put their finances back on a sustainable path and help ensure market access. Section 1 of this paper details Africa’s new wave of debt crises since 2010. Section 2 discusses the new debt resolution framework and its limitations. The paper then concludes by setting out the rationale for a new financial stability mechanism.

Date: 2023-06
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