World Bank: Debt risks hover over African economies as global headwinds persist

Africa's debt situation remains a pressing concern as economies on the continent strive to navigate through global shocks that have hindered growth prospects. CNBC Africa's Aby Agina engaged in an insightful discussion with World Bank's regional Vice President Victoria Kwakwa, shedding light on the challenges faced by African economies and the imperative need for sustainable solutions. Kwakwa emphasized the critical importance of macroeconomic stability in mitigating debt risks and fostering growth in the region. She underscored the pivotal role of effective fiscal management in steering economies towards sustainability and averting unsustainable debt accumulation. According to Kwakwa, achieving fiscal sustainability hinges on prudent expenditure allocation, efficient revenue generation, and the elimination of wasteful expenses. These measures are essential for preserving macro stability, reducing debt vulnerabilities, and addressing inflationary pressures prevalent in many African countries. Furthermore, Kwakwa emphasized the need for African economies to pursue robust growth strategies aimed at surpassing pre-COVID growth levels in order to uplift masses from poverty through job creation. Central to this growth agenda is cultivating a conducive policy environment for a vibrant private sector, which is essential for driving economic expansion. Kwakwa highlighted the importance of ensuring policy predictability, stable exchange rates, and a level playing field for private enterprises to thrive and attract investment. Additionally, she emphasized the significance of enhancing agricultural productivity to tackle issues such as food insecurity and price inflation, which contribute to macroeconomic instability. While acknowledging the multifaceted nature of the challenges facing African economies, Kwakwa outlined key priorities including macroeconomic stability, private sector support, and agricultural productivity enhancement as focal points for ministers of finance and policymakers. The interview further delved into concerns over escalating debt levels plaguing African economies, with particular focus on countries like Ghana, Kenya, Zambia, Malawi, and Ethiopia. Kwakwa highlighted a notable shift in the composition of African debt, with a significant rise in market-based borrowing compared to traditional official loans. This trend has implications for debt sustainability, as market-based debt tends to be costlier and exposes countries to higher financial risks. Kwakwa expressed apprehension over the increasing debt distress or high risk of debt distress faced by several African countries, necessitating urgent global intervention to address the looming crisis. She underscored the importance of collaborative efforts through initiatives like the G20 Common Framework to facilitate debt relief negotiations between debtor countries and various creditors. Despite the potential of such frameworks, Kwakwa highlighted the need for enhanced global cooperation to streamline debt restructuring processes and ensure timely and effective resolution of debt challenges. Moreover, she emphasized the significance of bolstering debt management practices, enhancing transparency, and strengthening governance mechanisms to prevent the proliferation of unsustainable debt practices. Kwakwa reiterated the World Bank's commitment to supporting African economies in navigating the complex debt landscape while advocating for a concerted global approach to safeguarding financial stability and fostering sustainable development across the continent.