COVID-19 could precipitate a new African debt crisis

Subject

The impact of the COVID-19 crisis on Africa's debt landscape.

Significance

African finance ministers, backed by the UN, have called for a coordinated debt relief package to avert a looming debt crisis that could be precipitated by the COVID-19 pandemic. In parallel, individual countries such as Nigeria have begun separate bilateral negotiations with their creditors, underscoring the region’s more complicated debt landscape since the first wave of debt relief in the 2000s.

Impacts

• Hopes of a rebound in global economic conditions in 2021 will limit the extent of any debt relief offered.
• Countries with already high debt burdens and weak external accounts (Angola, Zambia) are most at risk of falling into debt distress.
• Disorderly defaults could trigger a 1980s-style debt crisis, which froze access to commercial capital for two decades.