The African Economic Outlook 2021 is part of the annual report by the African Development Bank (AFDB). It seeks to analyze immediate-past economic situations in Africa and predict economic outcomes for the concurrent year. The recently released report has positive figures for most countries on the African continent. This exciting news comes despite the wrenching impact of the COVID-19 pandemic in 2020. Here’s a breakdown of the three-chapter report.
Breakdown of The African Economic Outlook 2021 Report
In recent years, the African economy has experienced a generally progressive trend. As reported by the African Development Bank, the continent enjoyed a consecutive 3.4 percent economical growth in 2018 and 2019. The African Economic Outlook 2020 also pictured equal growth distribution largely driven by South Africa, Morocco, Algeria, Egypt, and Nigeria.
The year 2021 appears better promising with Africa expected to recover from its worst economic recession in half a century. However, there must be changes in policies to ease the effects of the pandemic. This should be accompanied by an understanding of debt structure and composition. Also, the report by the African Development Bank (AFDB) suggests modifications to government rule in order to ease debt resolution and enhance growth. This report explains this in three chapters.
Growth Outlook of The African Economy
The first chapter in the African Economic Outlook 2021 discusses the important results of resuming tourism, normalizing commodity prices, and taking other economy-building steps. The report urges countries across the continent to rollback restrictions set during the global pandemic. This will increase recovery which is already showing encouraging signs.
These leading indicators present an outright positive economic growth outlook. Gross Domestic Product (GDP) is therefore projected to grow by 3.4 percent. This comes after a huge contraction of 2.1 percent in 2020. However, even though the new figure is achievable, there is some level of uncertainty due to possible domestic and external hindrances.
Debt resolution is the focus of the second chapter in the recently released African Economic Outlook 2021 report. This is understandably a concern since the debt-to-GDP ratio is expected to rise by 10 percent from the previous value of 60 percent.
Governments have increasingly suffered financing needs since the beginning of the COVID-19 pandemic. The introduction of stimulus packages further increased the need for more funding. These packages cost varying percent of GDP (0.02 in South Sudan to about 10.4 percent in South Africa). Also, it had immediate and direct effects on debt level, budgetary balances, and so on.
Along with the cost of stimulus packages, other factors such as growing interest rates, shorter debt maturity period, and expanding contingent liabilities all lead to debt accumulation. The report directly links governance and government reforms to debt resolution.
This third chapter, dubbed “debt resolution and the nexus between governance and growth“, merges the issues of debt resolution and growth through government reforms. It basically considers sovereign debt restructuring in financial architectures by the international community. This will lead to the reduction in debt resolution costs which is important for the African economy. Ultimately, government policies will provide power to ensure the growth of the African economy. This relates to strategies that target digitalization and debt transparency.
The upward forecast of the African economy in the recently released report gives both Africans and investors a sigh of relief. However, this projected growth will not be achieved if African governments fail to take necessary actions highlighted by the African Development Bank (AFDB). The importance of growing the Gross Domestic Product (GDP) especially comes from the fact that several African countries are heavily in debt.