AFRICAN ECONOMIC OUTLOOK 2022 Web | Page 43

Debt relief initiatives have not stopped debt vulnerabilities from continuing their climb , with around three-fifths of African coun tries either in or at risk of debt distress in

February 2022

Yet this amount represents only 5 percent of their total SDR allocation and only a small fraction of their financing needs . To reconcile the distribution with these needs , the IMF has called for voluntary channeling of SDRs from members with strong external positions into the Poverty Reduction and Growth Trust , which is currently interest free .

High compliance with resource pooling into the trust is essential for African countries to benefit more from SDR liquidity and start the trajectory toward debt sustainability . In addition , the African Union Commission has called for reallocating SDRs from “ willing ” advanced economies to Africa and recommended that a portion of these be channeled through the African Development Bank as a prescribed holder for leveraging the resources to provide greater financing to African economies .

These debt relief initiatives have not , however , stopped debt vulnerabilities from continuing their climb , with 23 African countries either in or at risk of debt distress in February 2022 ( 16 are at high risk of debt distress and 7 are in debt distress ) out of the 38 African countries for which debt sustainability analyses are available ( figure 1.19 ).

Notwithstanding the rise in debt vulnerabilities in Africa , accommodative monetary policy stance undertaken globally at the height of the pandemic helped keep interest payments on debt in many African countries manageable . Monetary policy normalization in advanced countries to rein in inflation is stoking a rise in global interest rates . Coupled with increased pressure on the currencies of many African countries , tightening monetary policy in advanced economies is likely to exacerbate debt vulnerabilities . The prevailing economic environment characterized by limited scope for domestic procyclical fiscal policy in Africa may require reconfiguring the global policy response , including reinstating the DSSI framework , to help debt-ridden countries cope with emerging debt challenges . The new DSSI should provide incentives to attract the participation of commercial creditors , which hitherto had no appetite to engage with their borrowers .

External position and current account balance

Africa ’ s overall external position is projected to improve further , reflecting the stronger positive terms of trade shock on net energy , metal , and mineral exporters due to the Russia – Ukraine conflict and related sanctions on Russia The overall current account deficit is estimated to have narrowed to 2.4 percent in 2021 from 3.7 percent in 2020 ( figure 1.20 ). This reflects the resumption of dividend payments that were put on hold in 2020 and improvements in the trade balance and current transfers ( figure 1.21 ).

FIGURE 1.19 COVID-19 has triggered an increased risk of external debt distress in Africa , 2010 – 22

Note : As of February 2022 . Source : Staff calculations based on the Debt Sustainability Assessments for Low-Income Countries database .

30 AFRICA ’ s economic performance and outlook