He said the role of international organisations is critical to steer this issue in order to have a more meaningful and pragmatic assessment of a country’s distress and to suggest preventive measures for the incipient stages.
“India’s Finance Minister Nirmala Sitaraman has said that the looming debt crisis is a potential threat in the post COVID-19 recovery for low income countries. Debt sustainability should be an important agenda going forward,” Srinivas said addressing a webinar on “Africa’s economic response to COVID-19”, organised by the India International Centre.
An area of growing concern is the lack of transparency and debt structures assuming multiple faces, said Srinivas, Additional Secretary, Department of Administrative Reforms and Public Grievances.
The COVID-19 pandemic is taking place in a context where African countries are battling rising debt, huge health infrastructure gaps, high unemployment and informality of labour which has limited the scale and effectiveness of the government’s policy responses, he said.
“Debt restructuring becomes meaningful only if we know the contours of the debt – who owes what, to whom and on what terms. Hence great effort is needed in ensuring transparency in all forms of debt,” said Srinivas, who worked with the International Monetary Fund (IMF) during 2003-2006.
He said the pandemic could push 26 million people in sub-Saharan Africa into extreme poverty in 2020 and up to 39 million people if the downside risks to growth materialise.
The magnitude of the economic crisis in Africa can be gauged from the slowdown being witnessed in the larger economies, Srinivas said.
In South Africa, economic activity is projected to contract by 8 per cent in 2020, in Nigeria the economic contraction is projected at 5.4 per cent in 2020, in Angola, the economic activity will fall by 4 per cent and in Ethiopia the economic growth is projected at 1.9 per cent which is still 1.3 per cent below 2019 growth rates, he said.
The pandemic is a wake-up call for African governments to resolve the persistent challenges that place the continent in a weak position, Srinivas said.
He said fiscal space in sub-Saharan Africa remains extremely limited, there exist challenges to raise domestic revenue mobilisation along with the risk of decreased financing – both official and private.
“This could reverse decades of progress in economic and social development. To sustain recovery, foster job creation and address debt vulnerabilities multilateral backing through grants, concessional financing and debt restructuring are necessary,” Srinivas said.
The fiscal stimulus packages in Africa have been narrow and low, he said.
Countries in sub-Saharan Africa provided fiscal stimulus packages only 0.26 per cent of the GDP on an average, compared to 9 per cent in Europe, 10 per cent in India and 11 per cent in the US and Canada, he said.
The path forward has been identified as to continue with essential measures to protect lives and livelihoods, build a more resilient and inclusive economy and deal with the debt, the officer said.
“For many African countries, urgent action is required now. Given their high debt burdens, they are struggling to maintain vital policy support and need access to grants, concessional credit and debt relief. Strong international policy collaboration is needed to speed up the recovery,” Srinivas said.