Developing economies are being hit on all fronts by the coronavirus crisis, which has grounded to a halt much of economic activity worldwide. Poor global demand has seen commodity prices plunge in value since the turn of the year, resulting in depleting external reserves and huge foreign capital outflows as investors flee for safety.

The massive outflows will be particularly damaging for emerging markets such as Nigeria, which are heavily reliant on foreign capital and the economic fallout from the pandemic could now trigger bond defaults in the coming weeks. But the expected series of defaults is unlikely to be limited to emerging market assets alone, experts say, with the potential to affect the global credit market crisis already forming in debt markets.

For African countries, the situation is compounded by the complications in securing the much-needed debt relief. Finance ministers from the region have requested relief from lenders to provide more fiscal space and flexibility in combating the virus outbreak that is gaining momentum in the continent. But the complexity of the creditor landscape, comprising bilateral, multilateral and commercial partners, makes it difficult to adopt a relief framework that works for all parties.

The World Bank and International Monetary Fund have backed the bid for relief, calling for an immediate postponement of debt payments from International Development Association countries classified as the world’s poorest countries. “The debt relief will come in handy for Nigeria and other African countries in this period of crisis,” Lagos-based CSL Stockbrokers said in a note.

The global economy is currently experiencing a “synchronized slowdown” with expectations of a global recession, CSL said. While resource-dependent economies in Africa like Nigeria and Angola are prime victims of the slump in global demand, services-based East African countries have seen a slump in tourist visits as several countries put an embargo on non-essential travel.

Economic impact attributed to COVID-19 could see Africa’s gross domestic product growth for the year cut by 3 to 8 percentage points, experts at McKinsey & Company’s say in an impact study, while economies in the continent could experience a loss of between $90 billion and $200 billion.

The dilemmatic nature of the ongoing pandemic means African nations are faced with a double whammy of impacts as regards debt – impaired revenue generation and plunging reserves mean governments face the difficulty of servicing existing debts, hence the call for debt relief, while they also have to take on more loans to adequately respond to the virus.

Nigeria’s finance minister Zainab Ahmed this week said the government has started talks with multilateral lenders to suspend debt repayments for this year and the next while at the same time is seeking about $7 billion from multilateral financial institutions to mitigate the impact of COVID-19 on the economy – $3.4 billion from the IMF, $2.5 billion loan from the World Bank, $1 billion from the African Development Bank and an undisclosed amount from the Islamic Development Bank.

Across the region, the World Bank has approved a $7.5 million IDA grant to Sierra Leone, $20 million credit for Senegal, $47 million to fund the emergency response in the Democratic Republic of Congo, while in East Africa, Kenya and Rwanda received a combined $159.4 million from both the World Bank and the IMF this week, all to deal with the adverse impact of the COVID-19 pandemic on livelihoods and respective economies.

Africa’s debt profile, characterized by slow growth in government revenue compared to the increase in debt stock (high debt-to-revenue ratio), has always sparked concerns from economists. The situation is expected to deteriorate further, however, with the COVID-19 pandemic, painting a gloomy picture of debt sustainability on the continent.

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