African
Economic
Outlook2021
HIGHLIGHTS

From Debt Resolution
to Growth: The Road
Ahead for Africa

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HIGHLIGHTST

he 2021 edition of the African Economic Outlook focuses on debt resolution, governance,and growth in Africa. Chapter 1 examines Africa’s growth performance and outlook amid
the COVID–19 pandemic. The chapter emphasizes policy options to mitigate the effects of thepandemic in the short, medium, and long terms. Chapter 2 explores the causes andconsequences of Africa’s debt dynamics by showing how the changing structure andcomposition of debt create vulnerabilities. In chapter 3, the report takes stock of the challenges
in the current global architecture for debt resolution and explores the link between governanceand growth with an emphasis on proposed reforms to improve the processes of debt resolution,
governance, and sustainable growth.

CHAPTER 1 AFRICA’S GROWTH PERFORMANCE AND
OUTLOOK AMID THE COVID–19 PANDEMIC
Africa is projected to recover in 2021 from its worst economic recessionin half a century
Economic activity in Africa was constrained in 2020 by an unprecedented global pandemic
caused by COVID–19. Real GDP in Africa is projected to grow by 3.4 percent in 2021, after
contracting by 2.1 percent in 2020. This projected recovery from the worst recession in morethan half a century will be underpinned by a resumption of tourism, a rebound in commodity
prices, and the rollback of pandemic-induced restrictions. The outlook is, however, subject togreat uncertainty from both external and domestic risks.

The economic impact of the pandemic varies across economic
characteristics and regions, but the projected recovery is broad-based
Although all economies in Africa have been affected by the pandemic, tourism-dependent
economies, oil-exporting economies and other-resource intensive economies were the mostsignificantly hit by the pandemic. Tourism-dependent economies are projected to recover froman 11.5 percent GDP decline in 2020 to grow by 6.2 percent in 2021; oil-exporting countries,
from a 1.5 percent decline to grow by 3.1 percent; and other-resource-intensive economies,
from a 4.7 percent decline to grow by 3.1 percent. Non-resource-intensive countries, where
output shrank by 0.9 percent in 2020, are projected to grow by 4.1 percent in 2021.

Uncertainty surrounding the growth outlook for Africa is high, but risks
are tilted to the upside
Downside factors that could derail recovery include a resurgence of COVID–19 infections, debt
overhang, financial market volatility that impedes capital flows, low commodity prices, low1Countercyclical easy
monetary policy
and fiscal stimulus
packages are
expected to support
the continent’s
economic recovery

tourism and remittances, extreme weather events,and social tensions. Upside factors that could
result in better-than-anticipated growth for thecontinent include the effective deployment of therapeutics and vaccines for COVID–19, especially in
African countries, full implementation of the AfricaContinental Free Trade Agreement, and continued
progress in structural transformation, including
digitalization and work-from-home arrangements.

and female-headed households could represent alarge proportion of the newly poor. The monetary
cost of lifting the newly extreme poor to the $1.90
per day poverty line is estimated at $4.5 billion for2021­—­about $90.7 million on average per country.

Macroeconomic fundamentals have
weakened as a result of the pandemic

Evidence shows that African countries withmore stringent lockdown restrictions have experienced fewer COVID–19 cases than those withless restrictive policies. However, the estimatedeffect of lockdowns on the continent is modest
compared with other regions, due to the inherent
difficulties of enforcing such restrictions in Africa,
where informal employment predominates. Workplace, public transport, and school closures andcancellations of public events have been more
effective in curbing COVID–19 infections thanother types of lockdown restrictions. Stringent
lockdowns have, however, been associated withmore severe economic contraction.

Although counterbalancing forces kept average
headline inflation stable at 10.4 percent in 2020,
core inflation (excluding food and energy prices)
has risen in many countries. Significant currency
depreciations have occurred in Africa, particularly
in frontier market economies, partly as a result of
the disruptions in external financial flows­—­including
remittances, foreign direct investment, portfolio
investment, and official development assistance.
Fiscal deficits are estimated to have doubled in2020 to a historical high of 8.4 percent of GDP,
leading to increased debt burdens, but a gradualconsolidation process is expected in 2021 andbeyond. Countercyclical easy monetary policy andfiscal stimulus packages are expected to support
the continent’s economic recovery. Investor sentiment is still weak compared with pre-pandemic
levels and the capital flight from developing countries experienced at the peak of the pandemic in
March-June 2020 has been only partially reversed.

The adverse effects of COVID–19 willreverse hard-won gains in poverty
reduction in Africa
About 30 million Africans were pushed into
extreme poverty in 2020 as a result of the pandemic and it is estimated that about 39 million
Africans could fall into extreme poverty in 2021.
Those with lower levels of education, few assets,
and working in informal jobs are most affected.
Inequality is also set to increase, because of thedisproportionate impact of the pandemic on such
vulnerable groups as women, youth, and lowskilled informal sector workers. These groups are
particularly exposed because they often work incontact-intensive sectors with fewer opportunities
to socially distance and work from home. Women

Although lockdowns have beeneffective at mitigating the spread of
COVID–19 in Africa, they have had
severe economic consequences

Policy recommendations to support
economic recovery and build resilience:• Continue to support the health sector to consolidate gains in the fight against the pandemic. It is not yet time for policymakers to
be complacent in the fight against the virus. A
second wave of the pandemic has occurredin several regions across the world. Countries must continue to make resources available for health care systems to cope with thevirus and other preventable diseases. Routine
public health campaigns­—­such as child vaccination against polio and measles, treatment
for malaria, maternity care, and treatment forother chronic diseases should not be disrupted
because of an excessive focus on the COVID–
19 pandemic.
• Sustain monetary and fiscal support to underpin economic recovery. Where there is stillfiscal space or access to liquidity, policymakers
should maintain fiscal and monetary support
until the expected economic recovery has
fully materialized. Once the recovery has beenachieved, governments need to commit to a2 H igh l ights

•

•

•

•

credible path of fiscal consolidation to restore
debt and fiscal sustainability. Where there is no
fiscal space, policymakers should seek international support through grants and concessional loans to support the recovery.
Address issues of increasing poverty by
expanding social safety nets and making
growth more equitable. To avoid reversing
more than two-decades of progress on poverty
reduction, policymakers must step up efforts tolift people from extreme poverty and increase
the coverage and scope of social protection
to aid the newly impoverished. Policymakers
can take advantage of increasing digitalization
to boost the effectiveness, reduce the cost,and expand the reach of social protection programs using in-kind support such as free foodbanks, medical supplies, and free housing.
Minimize the long-term implications of the pandemic on human capital accumulation. Whenever in-person learning is practical, policymakers should immediately open schools, withthe appropriate safety protocols in place. Whenin-person classes are impractical, learning
should continue using traditional print, radio,
and TV media, and digital technologies suchas smartphones and computers.
Scale up active labor market policies to retool
the labor force for the future of work. Policymakers must scale up efforts to retrain andreskill the labor force as quickly and broadly
as possible to facilitate workers’ transition fromlow productivity, obsolete sectors and jobs into
new and emerging ones. They should encourage labor reallocation through job search andmatching policies and establish public works
as a source of training and experience for the
new digital economy. Other active labor market
policies include helping in the process of labor
reallocation through job search and matchingpolicies.
Accelerate structural transformation throughdigitalization, industrialization, and diversification. As the world continues to grapple with the
COVID‑19 crisis, Africa’s policymakers must
look ahead and build a more resilient future.
To make Africa’s economies more resilient,countries need to deepen structural reforms
and diversify their productive base. Fostering

H igh l ights resilience will also require adopting policies
that create room to make quick changes andreforms that promote economic flexibility. Policymakers should accelerate the diversificationof their economy’s productive base throughhuman capital development, promoting jobs inhigh-productivity sectors, intensifying reforms
to improve the investment climate, and advancing digitalization. They should adopt policies
that promote economic flexibility by strengthening macroeconomic stability, improving
market flexibility, and enhancing political,
social, and environmental governance.
• Strengthen regional and multinational solidarity to enable shared and sustainable recovery.
Africa’s policymakers must continue to call for
greater coordination among countries in thefight against the virus and in the provision offinancial support to countries experiencing
liquidity and debt challenges.

CHAPTER 2 DEBT DYNAMICS
AND CONSEQUENCES

African governments
need additionalgross financing ofabout $154 billion
in 2020/21 torespond to the crisis

The COVID–19 pandemic has caused
a surge in government financing
needs in Africa
Since the COVID–19 pandemic began in early
2020, governments have announced fiscal stimulus packages ranging in cost from about 0.02 percent of GDP in South Sudan to about 10.4 percent
of GDP in South Africa. The Bank estimates that
African governments need additional gross financing of about $154 billion in 2020/21 to respond tothe crisis. These fiscal stimulus packages havelargely had immediate, direct implications forbudgetary balances, borrowing needs, and debt
levels.

The average debt-to-GDP ratio in
Africa is expected to climb significantlyin the short to medium term
The surge in government spending and the contraction of fiscal revenues as a result of COVID–19
will result in fast-paced debt accumulation in thenear to medium term. Although the average debtto-GDP ratio, a standard measure of debt sustainability, had stabilized around 60 percent of GDP

3between 2017 and 2019, it is projected to increaseby 10 to 15 percentage points by 2021 as a resultof COVID–19. Countries expected to accountfor the most significant increase in Africa’s overall average debt levels are tourism-dependent
economies and other resource-intensive (non-oil)
economies.

Recent debt accumulation has been
driven mainly by the depreciationin exchange rates, growing interest
expenses, and high primary deficits

The averagedebt-to-GDP ratio
is projected toincrease by 10
to 15 percentage
points by 2021 as aresult of COVID–19

A decomposition of Africa’s debt dynamics
shows that debt accumulation has been driven
by exchange rate depreciation, growing interest
expense, high primary deficits, poor governance,
weak institutions, ambitious public investment
programs, and increased defense-related expenditures. But the strong GDP growth recorded
before the pandemic has helped to dampen
the rate of growth of the debt-to-GDP ratio. The
dynamics are, however, different for different
groups of economies. For oil exporters and otherresource-intensive economies, debt dynamics have primarily been driven by exchange rate
depreciation and primary deficits, largely as aresult of volatility in commodity prices. For non-resource-intensive economies, interest expenditures
have been the major driver.

Africa’s debt continues to shift fromtraditional lenders toward private andcommercial debt
The creditor base for Africa’s debt continues toshift away from traditional multilateral and bilateral
Paris Club sources toward commercial creditorsand non-Paris Club official lenders. The shareof commercial creditors in Africa’s external debt
stock has more than doubled in the last two
decades, from 17 percent in 2000 to 40 percent
by the end of 2019. At least 21 African countries
accessed international capital markets between
2000 and 2020. Non-frontier-market economies
and low-income countries­—­which do not haveaccess to international capital markets­—­
h ave
continued to rely on bilateral and multilateral concessional credit, although there has been a shift
away from traditional Paris Club lenders to nonParis Club lenders, notably China.

Significant vulnerabilities are
emerging as a result of the changing
landscape for Africa’s debt
As of December 2020, of the 38 countries forwhich debt sustainability analyses are available,
14 were rated in high risk of debt distress andanother six were already in debt distress. Sixteen
countries have a moderate risk of debt distress,
while two are considered at low risk. However,safety margins are being eroded by COVID–19,
as spending rises and revenue falls. Moreover,credit rating downgrades are likely to occur for
many countries in the near to medium term. Other
emerging vulnerabilities include loss of access tointernational capital markets as a result of deteriorating debt sustainability ratings; fast-growinginterest expenses as a share of revenue; rolloverrisks due to shorter debt maturities; a narrowingof the differential between the real (inflation-adjusted) interest rate and growth; expanding contingent liabilities; and limited transparency of debt
collateralization.

Evidence shows that favorable external
conditions, supported by sounddomestic policies, contribute to shorter
durations of bond market distress
Using secondary market information to assess therole that policies play in fostering recovery fromdebt distress, the report shows that the interaction
between domestic policy and favorable external
conditions help to speed up the recovery from debt
distress. Specifically, greater openness to tradesupports faster bond-market distress recovery andthe presence of an economic program supported
by international financial institutions contributes toreducing debt distress episodes. Stronger political rights also have a positive association with the
speed of recovery from debt distress. But higher
interest rates on the 10-year US Treasury bondtend to extend the duration of debt distress.

Strengthening the links between debt
financing and growth returns is crucial
for debt sustainability in the continent
To grow out of debt in a sustainable manner,countries need to improve the efficiency of debt-financed investments. This is best done by ensuringthat debt is used to finance the most productive

4 H igh l ights

projects­—­those that generate sufficient growth
to pay for the debt in future. Policymakers shouldtake advantage of current low global interest rates
to borrow relatively inexpensive capital for highreturn public investments that accelerate growth.

CHAPTER 3 DEBT RESOLUTION
AND THE NEXUS BETWEEN
GOVERNANCE AND GROWTH
Debt resolution in Africa has often
been disorderly and protracted, withcostly economic consequences
The economic consequences of sovereign debt
restructuring are less severe in countries that act
pre-emptively and collaboratively and in thosecountries where economic governance is stronger. However, the Heavily Indebted Poor Countries
initiative took more than a decade to be implemented, and recent debt resolution in Africa has
been delayed by long-lasting litigation with private
and official creditors. The absence of orderly andsuccessful sovereign debt resolution, especiallywith private creditors, makes the prospects ofdebt distress worrisome for African economies.

The current international financial
architecture makes orderly sovereign
debt restructuring complex to achieve
The fundamental difficulty with sovereign debt isthat there are no formal bankruptcy procedures,as there are in corporate bankruptcies. While
restructuring in most emerging markets has been
relatively smooth, pre-emptive, and with a highparticipation of creditors, some episodes, especially in Africa, have been protracted, incomplete,and non-transparent.
The current global architecture is further challenged by a lack of transparency and an ongoingrace to seniority. The increasing use of collateralized and resource-backed borrowing by sovereigns, and the lack of transparency in those loans,makes fair burden-sharing more difficult andreduces the chances that future debt restructuring
operations will proceed smoothly. This problem ismost prevalent in countries where state-owned
enterprises are a source of hidden debts, leakages, and corruption.

H igh l ights To avoid high debt resolution costs
and limit the likelihood that debt
crises re-emerge, the international
community needs to push forenhanced global coordination
The G20 Debt Service Suspension Initiative (DSSI)
for low and lower-middle-income countries is positive and welcome. The inclusion of nontraditional
official creditors is a significant step toward global
coordination. Yet, although the DSSI called on private creditors to agree to provide similar terms, if
asked, the initiative does not include them. Without all actors participating, the scope of any relief
agreement is limited.
Global coordination to facilitate debt resolution can be improved by leveraging on the official
sector through a strengthened version of the ParisClub’s comparability of treatment clause, which
would ensure that official relief translates into
private relief, regardless of the residence of thecreditors.
Also deepening the toolkit of international
financial institutions can help mitigate the negative
effects of belated and insufficient debt restructuring. Further improvements in institutions (suchas the African Legal Support Facility) and policies (such as the provision of partial guarantees)
directed at supporting the restructuring process
might help overcome the concerns of debtors
and creditors and facilitate speedier and moresmoother debt restructuring.

Policymakers shouldtake advantage ofcurrent low global
interest rates toborrow relatively
inexpensive capitalfor high return
public investments

African countries need to adopt or
keep abreast of legal and financial
innovations that facilitate debt
restructuring
Various legal changes, such as collective action
and aggregation clauses, may be considered toenhance the ability of countries to engage with thecreditors and avoid the negative costs from holdout creditors willing to litigate.
To deal with the recurrence of debt crises, it
may be time to reconsider whether state-contingent debt instruments that link debt service
payments to a country’s ability to pay can beused extensively as a tool to minimize the possibility of future unsustainable debt dynamics.
Several recent restructurings have also featured
clauses that make debt relief contingent on reform5A more conducive
global debt
resolutionarchitecture
combined withbold governancesystem reforms in
Africa would help
to put the continent
on a sustainabledebt path andre-ignite growth

implementation, to provide incentives to pursue
responsible fiscal policies. These instruments canbe valuable for African countries.
International financial institutions are in a position to partner in this effort, by providing debtor
countries with incentives to own this initiative.

importance are also three key components ofPFM­—­
d ebt management, domestic resource
mobilization, and budgeting.

For Africa, the nexus between
governance and growth is the rightparadigm to get out of the COVID–19
crisis and avoid a looming debt crisis

COVID–19 and its aftermath increase the urgency
for countries in Africa not only to ensure resilience (for example, by addressing deficiencies in
the health sector), but also to chart a course for
economic transformation. Two important tasks
could underlie programs to revitalize African
economies:• Launching a digital moonshot­—­an all-out effort
to harness digital technologies­—­
to propel
Africa into the Fourth Industrial Revolution andboost job creation.
• Promoting free and fair competition and investing in transparency to enhance production
efficiency. At the national level, three policy
actions can be considered to boost competition and promote growth: radical transparency,
competitive neutrality, and the independence
and accountability of competition and regulatory authorities.
A more conducive debt resolution architecture
at the global level combined with bold governancesystem reforms in Africa would significantly help to
put the continent on a sustainable debt path andre-ignite growth.

Experience shows that debt restructuring has
not delivered lasting resolution of crises and has
instead left countries unreformed and unable to
grow. This highlights two intertwined problems ofthe current framework. First, the framework fails tofacilitate early restructuring and a fair burden-sharing. Second, it fails to elicit genuine reforms of
economic governance to re-ignite growth.

African countries must eradicate allforms of “leakages” in public resource
management
Eradicating leakages to ensure that transfers reach
their desired targets will require the strengtheningof Public Financial Management (PFM), focusing
on four fundamental dimensions: prudent fiscal
decisions, credible budgets, reliable and efficient
resource flows and transactions, and institutionalized transparency and accountability, including in the natural resource sector. Of particular

Digitization and fair competition will
be fundamental levers for re-igniting
growth6 H igh l ights

Real GDP in Africa is projected to grow by 3.4 percent in 2021, after contracting by
2.1 percent in 2020. This projected recovery from the worst recession in more than halfa century will be underpinned by a resumption of tourism, a rebound in commodity
prices, and the rollback of pandemic-induced restrictions.
Macroeconomic fundamentals have weakened as a result of the pandemic. Althoughcounterbalancing forces kept average headline inflation stable at 10.4 percent in
2020, core inflation has risen in many countries. Fiscal deficits are estimated to havedoubled in 2020 to a historical high of 8.4 percent of GDP, leading to increased debt
burdens. A gradual consolidation process is expected in 2021 and beyond.
The adverse effects of COVID-19 will reverse hard-won gains in poverty reductionin Africa. About 30 million Africans were pushed into extreme poverty in 2020,
and about 39 million more could fall into extreme poverty in 2021. The monetary
cost of lifting the new extreme poor to the $1.90 a day poverty line is estimatedat $4.5 billion for 2021­—­about $90.7 million on average per country.
Although lockdowns have been effective at mitigating the spread of COVID19 in Africa, they have had severe economic consequences. Evidence showsthat African countries with more stringent lockdown restrictions haveexperienced fewer COVID-19 cases than those with less restrictive policies.
Policy priorities to support economic recovery and build resilience
include continuing support for the health sector to consolidate gains in
the fight against the pandemic; sustaining monetary and fiscal support;
expanding social safety nets and making growth more equitable;
minimizing the long-term implications of the pandemic on humancapital accumulation; accelerating structural transformation throughdigitalization, industrialization, and diversification; and strengthening
regional and multinational solidarity.
Fiscal stimulus packages by African governments to contain the
pandemic have had direct implications for public debt levels.
The average debt-to-GDP ratio in Africa is projected to increaseby 10 to 15 percentage points by 2021. Moreover, Africa’s debt
continues to shift from traditional lenders towards private andcommercial debt with significant vulnerabilities.
Debt resolution in Africa has often been disorderly andprotracted with costly economic consequences. The current
international financial architecture makes orderly sovereign
debt restructuring complex to achieve. To avoid high debt
resolution costs and limit the likelihood that debt crises
re-emerge, the international community needs to push forenhanced global coordination. African countries need toadopt legal and financial innovations that facilitate debt
restructuring.
Strengthening the nexus between governance andgrowth is required to get out of the COVID-19 crisis
and avoid a looming debt crisis. African countries
must eradicate all forms of “leakages” in publicresource management and pursue digitization andfair competition to re-ignite growth.
Two important strategies could revitalize African
economies: Launching a digital moonshot an allout effort to harness digital technologies to propel
Africa into the Fourth Industrial Revolution andboost job creation—and promoting free and faircompetition and investing in transparency toenhance production efficiency.
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