GROSS FINANCING NEEDS AMONG LOWEST

MBABANE – Despite the distress caused by COVID-19, the country’s gross financing needs are among the lowest in Africa.

On Friday, the African Development Bank (AfDB) released the 2021 outlook, highlighting that the surge in government  financing needs as a  result of COVID–19  spending will result  in fast-paced debt accumulation. Out of the over 50 countries, Eswatini has been ranked 10th in terms of gross financing needs, with the figures among the lowest alongside the likes of Benin, Comoros and Ethopia. Gross financing needs speak to financial needs required to rollover maturing debt; defined as the fiscal deficit, plus any other transactions that require financing, plus paying back.

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AfDB highlighted that governments gross financing needs surged, as countries had to fund the packages aimed at allowing their citizens to weather the social and economic consequences of the pandemic.  The Bank estimates that African governments need additional gross financing of about US$154 billion (about E2.3 trillion) to respond to the crisis in 2020/21. The gross financing needs as a percent of GDP, vary across countries and exceed the critical threshold of 15 per cent for most countries. “These fiscal stimulus packages have largely had immediate direct implications for government spending, budgetary balances, borrowing needs, and debt levels. “Although about a quarter of countries used revenue measures such as tax  relief and tax payment deferrals, most have intervened using expenditure measures such as direct  public investments in health, support to small- and medium-sized enterprises (SMEs), and cash transfers,” shared AfDB.

According to the Bank, measures such as government guarantees to firms, equity injections, and loans could also expose governments to contingent liabilities in the medium to long term.
The surge in government financing needs as a result of COVID–19 spending will result in fast-paced debt accumulation.

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Although the average debt-to-GDP ratio, a standard measure of debt sustainability, had stabilised at around 60 per cent of GDP at the end of 2019, pandemic-related spending is estimated to have caused the debt-to-GDP ratio to average as many as 10 percentage points higher at the end of 2020. “Countries expected to account for the most significant increase in Africa’s overall average debt levels are those that have non-oil resource-intensive economies. The average debt-to-GDP ratio is projected to increase by 10 to 15 percentage points by 2021 as a
result of COVID–19,” reads the report.

Meanwhile, the 2021 edition of the African Economic Outlook focuses on debt resolution, governance, and growth in Africa. The report takes stock of the challenges in the current global architecture for debt resolution and explores the link between governance and growth with an emphasis on proposed reforms to improve the processes of debt resolution, governance, and sustainable growth.

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