African Development Bank, AfDB, President Akinwumi Adesina, recipient of the 2017 World Food Prize, and Professor Joseph E. Stiglitz, recipient of the 2001 Nobel Memorial Prize in Economic Sciences, have called for a quick and comprehensive plan for debt restructuring in Africa.

At the launch of the African Development Bank’s 2021 edition of its annual African Economic Outlook, Adesina urged African governments to consider collectively establishing an African financial stabilization mechanism, which would give Africa the fiscal space it needs to deal with debt. Africa’s collective debt now stands at 70% of the continent’s gross domestic product (GDP).

“It is high time that we set up a homegrown financial stability mechanism where we work together to mutualize our funds and ensure we avoid the spillover effects that come from global pandemics or any external shocks,” the head of Africa’s premier financial institution said.

“We must start by making sure that we carry out the macroeconomic policy reforms and the fiscal policy reforms that we need to get done,” he said, adding that Africa “is not looking for a free pass. We are just looking for an equitable way in which Africa’s fiscal space gets dealt with.”

The idea was backed by Stiglitz, who proposed an international debt framework.

“That’s a question I’ve been very concerned with for a long time,” said Stiglitz. “You need debt restructuring, and that needs to be really high on the international agenda. Every country has bankruptcy laws but there’s no bankruptcy law for international debt. When there’s too much debt, it’s as much the creditor’s problem as the debtor’s problem.”

Stiglitz added: “What needs to be done with debt is comprehensive and quick restructuring. We don’t want to fall into the trap of doing too little, too late.” Stiglitz’s proposal calls for an international debt framework that includes the private sector, given its growing role as a source of government debt.

According to the African Economic Outlook, the share of commercial creditors in Africa’s external debt stock has more than doubled in the last two decades, from 17 percent in 2000 to 40 percent by the end of 2019.

Some hope has come in the form of new special drawing rights, potentially $500 billion, that the International Monetary Fund could issue, in accordance with the G20’s recommendation at the end of February. Adesina said these funds will “go a long way” to stabilizing foreign reserves and the exchange rate, allowing countries to handle debt and re-engage in massive pro-growth investments that will help them to quickly recover from the Covid-19 pandemic.

Adesina presented a proposed African Financial Stabilization Mechanism, strongly supported by Stiglitz, as a critically needed solution that would allow African countries to agree on a set of convergent macroeconomic policies and principles and pool funds. Adesina said: This will allow us to “deal with the cause of the illness and not always the symptoms.”

The 2021 edition of the African Economic Outlook estimates that Africa’s GDP contracted 2.1 percent in 2020, the continent’s first recession in half a century. GDP is projected to grow by 3.4 percent in 2021. The report estimates that African governments will require additional gross financing of about $154 billion in 2020/21 to respond to the Covid-19 crisis.