World Bank warns of high debt distress among SSA economies

The World Bank Group has issued a warning to countries within Sub-Saharan Africa, urging them to enhance their debt management strategies to prevent falling into debt distress. In an exclusive interview with CNBC Africa, Abha Prasad, Practice Manager for Macroeconomics, Trade & Investment, Africa Eastern & Southern Region at the World Bank Group, shed light on the organization's new vision centered around reducing poverty in a sustainable manner, taking into account the impact of climate change on development agendas. Following the economic downturn caused by the COVID-19 pandemic, sub-Saharan African nations witnessed a rise in debt levels and an increase in poverty rates. While some countries are showing signs of recovery, the World Bank acknowledges the varying degrees of resilience among nations, with some economies still grappling with the aftermath of the crisis. Factors such as fiscal buffers, external shocks, and climate-related disasters have played a significant role in shaping the recovery trajectories of these countries. Debt burdens continue to pose a significant challenge for many countries in the region, with a substantial number either at a high risk of debt distress or already in debt distress. Prasad highlighted the lack of domestic revenue mobilization, slow economic growth, and reliance on non-traditional creditors as key contributors to the debt crisis. The World Bank stressed the importance of sustainable growth, effective debt management, and enhanced domestic resource mobilization to alleviate the debt burden. Looking ahead, African economies are confronted with the dual challenge of revenue generation and geopolitical uncertainties. Prasad emphasized the World Bank's support for countries in enhancing their domestic revenue mobilization efforts through targeted interventions focused on tax policy, administration, and digitization. Additionally, structural transformation initiatives aimed at creating better job opportunities, improving skills, and fostering economic growth are crucial components of the growth agenda. Addressing the pressing need for crisis response mechanisms, the World Bank has developed a comprehensive toolkit to assist countries in mitigating the impact of natural disasters and emergencies. From contingent financing instruments to technical assistance in building resilient infrastructure, the World Bank is committed to helping countries navigate crises and foster sustainable development. In conclusion, Prasad commended Rwanda for its economic progress and moderate risk of debt distress. However, she emphasized the importance of ensuring that economic growth translates into poverty reduction. The World Bank reaffirmed its commitment to collaborating with Rwanda and other African nations to address key development challenges and work towards reducing poverty in the region within a sustainable climate.