July 17, 2020/United Capital Report

The outbreak of COVID-19 left a negative imprint on the revenue profile of most SSA countries (especially for crude oil and tourism dependent economies). As such, the need to cushion the negative impact, spurred government spending across the region. Also, this fiscal imbalance widened the need for governments to borrow in H1-2020, due to constrained sustainable fiscal space.

As of 2019, 19 SSA countries were reported to have exceeded the 60.0% debt-to-GDP threshold set by the African Monetary Co-operation Program (AMCP) and IMF for developing economies. Accordingly, to create more fiscal room for governments, to spend on the critical infrastructures needed to curb the spread of the virus, the World Bank Group and the IMF called for debt relief, as well as debt servicing and repayment suspension, while also unveiling various support packages to assist the region in the fight against COVID-19.

While many SSA countries were quick to tap the IMF and World Bank support facilities, many were initially reluctant to seek debt suspension under the G20 initiatives. This was due to fears of credit-rating downgrades amid concerns that the debt suspension could include private creditors and limit countries’ access to international capital markets during the debt suspension period. However, more countries are starting to tap the initiative, amid the request by the G20 to ratings companies, to avoid any action against countries participating in the initiative. Clearly, 2020 is the year for concessional borrowings by SSA countries. However, as economies begin to re-open and external dynamics continue to improve, we might see some more private commercial borrowing in H2-2020.

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