As the world grapples with the COVID-19 pandemic, countries are putting in place significant fiscal policy measures to counteract the sudden stop in economic activities. These spending plans aim to minimise disruptions to liquidity and ensure the solvency of sectors, businesses and households that are most affected by the pandemic. Understandably, low-income countries with smaller fiscal room would not be in a position to deploy robust spending plans to mitigate the shock. The data from the IMF’s Policy Responses to COVID-19 Tracker supports this hypothesis. So far, the spending plans of countries in sub-Saharan Africa is 0.26% of GDP on average, which is considerably lower than the average of countries in Europe and Central Asia, and North America at 9% and 11.5% of GDP, respectively.

On 2 April, Africa’s Ministers of Finance solicited for debt relief from bilateral, multilateral and commercial creditors in order to improve their fiscal position. Similarly, a group of senior Africans have called for immediate debt relief for African countries in order to create the fiscal room required for governments to combat the pandemic. It is, however, noteworthy that African countries were offered about USD 99 billion in debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and Multilateral Debt Relief Initiative (MDRI) in 1996 and 2005 respectively. However, coronavirus debt relief will not only be provided to countries with unsustainable debt burdens, as was the case previously, but to the entire continent. 

This article attempts to make a case for African countries, particularly those in sub-Saharan Africa, to have recourse to debt relief in the face of the COVID-19 pandemic while assessing the practicability based on the experiences from previous efforts.

Current levels of debt and debt servicing

Several African countries stepped into the pandemic under a high debt burden which offers them limited room for fiscal manoeuvre. For sub-Saharan Africa, government debt as a share of GDP has grown from 31.7% between 2010-2015 to 50.4% in 2020 with countries like Cape Verde, Mozambique and Angola recording debt levels as high as 118.9%, 106.8% and 90% of GDP respectively. 

"Out of the world’s 28 poorest countries, 27 are in sub-Saharan Africa with the region’s poverty rate standing at 42.3%."

Since 2010, more of these countries have gained access to the international capital market and as such, commercial creditors have become key players in providing credit to the continent. The change in the creditor composition will have severe implications for the request for debt relief given the historically low participation of commercial creditors in providing relief under the HIPC initiative.

The growth in debt has also led to rising debt servicing costs as debt service payments for several countries are higher or on par with national investments in key human capital sectors. 

In Nigeria, the 2020 budget allocates NGN 2.43 trillion to debt servicing, while NGN 706 billion and NGN 464 billion have been allocated to the education and health sectors respectively. Similarly, in 2020, Ghana has earmarked GHC 13.9 billion to debt servicing, while spending GHC 10.68 billion and GHC 4.24 billion on education and health respectively. South Africa has also allocated similar amounts for debt servicing, basic education and health - at ZAR 229 billion, ZAR 265 billion and ZAR 229.7 billion respectively.

Why Africa needs debt alleviation 

Beyond debt, Africa has the weakest health infrastructure in the world. In a global review of health systems across 191 WHO member states, most of the countries that ranked within the bottom percentile are African. Specifically, out of the bottom 50 countries, 34 are in sub-Saharan Africa. As such, the health systems are not adequately prepared to respond to the needs of the population during the health crisis and will require significant finance.

Another reason why Africa should be considered for debt alleviation is that most of the continent (nine out of ten African countries) is commodity-dependent and, as such, is suffering from the recent demand shock associated with the pandemic. Where 41% of countries in sub-Saharan Africa are commodity-dependent, in Latin America and the Caribbean, East Asia and the Pacific, the Middle East and North Africa, and Europe and Central Asia, the share is just 17%, 16%, 13% and 12% respectively. The reduction in revenue has, therefore, put pressure on the budgets of governments across the continent with spillover effects to the rest of the economy.

"In Nigeria, which has a population of 195.9 million people, less than 500 ventilators are available."

Moreover, due to structural issues, larger than normal fiscal spending is now required on the continent. According to the International Labour Organisation, 66% of total employment in sub-Saharan Africa is in the informal sector which is characterised by low wages. 

Poverty is another issue. Out of the world’s 28 poorest countries, 27 are in sub-Saharan Africa with the region’s poverty rate standing at 42.3%. Considering that a large share of the population does not earn a certain threshold of income sufficient enough to meet their needs, the continent will require large safety nets for its citizens as the pandemic spreads. 

Furthermore, given the low investment in manufacturing in Africa, many countries have limited access to the medical supplies and associated equipment required to combat the pandemic. In Nigeria, which has a population of 195.9 million people, less than 500 ventilators are reportedly available. Others are in a worse situation: Zimbabwe, which has a population of 14.4 million people, has around 20 ventilators in public hospitals across the country while the Central African Republic, with a population of 4.6 million people, has only three ventilators. Significant financial resources will also be required to address the shortfall in personal protective equipment for health workers over the coming weeks and months. 

What kinds of debt relief should be made available

A standstill for debt servicing for an agreed-upon time will immediately free up resources for African countries to combat the pandemic. Considering that governments spend a considerable share of their budget on repaying the principal and interest payments of their debt, providing the latitude to hold off on these payments in the short term will offer the flexibility required to focus on the crisis. In addition, grants and concessional loans with low-interest rates and long grace and maturity periods should be made available to the continent. Multilateral and bilateral creditors alike can play a more proactive role in this area to make such funds available.

While the creditor community has evolved to include a larger group of commercial creditors, multilateral and bilateral creditors continue to provide considerable amounts of credit to the continent. Judging from the experience of the HIPC and MDRI, these creditors are likely to participate in a coronavirus debt relief programme. Indeed, multilateral development organisations, including the World Bank and International Monetary Fund as well as bilateral development partners, such as the G-20, have already stated their commitment towards providing support to developing countries.

Despite the urgent need for finance, African governments can also achieve quick wins without waiting on the international community. In this regard, the following policy actions are recommended:

• The use of a mix of timely and targeted policies such as temporary tax relief is recommended considering the shortfall in public finance for cash transfers. Payments on personal and corporate income tax should be waivered during the crisis to ensure that households and businesses are financially secure.
• Now more than ever, African governments need to reprioritise their revenue and spending objectives. The focus should be placed on key human capital sectors, such as health, as well as import-substitution policies focused on manufacturing to build the capacity to weather the effects of the pandemic.
• The government and private sector should cooperate to locally manufacture the medical supplies and equipment required to tackle the pandemic. This is crucial given the already high global demand for supplies for which Africa will now have to compete. While governments can provide the means, the technical know-how and corporate philanthropy offered by the private sector should be leveraged to deliver such goods.

The COVID-19 pandemic has required that people, businesses and governments across the world pool resources to tackle the problem. Cuban doctors flew to Italy to provide support as the country became overwhelmed. Jack Ma, the co-Founder of Alibaba, has provided free medical supplies to all African countries. In the spirit of goodwill and global partnership, Africa should be provided debt relief to assist its governments in adequately combating the pandemic. 

This is especially important considering that COVID-19 is a social collective ill: until all countries are free of the virus, no single country is truly free.

The opinions expressed in this interview are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.

This article was first published on Africa portal

The International Labor Organization (ILO) recently released a report which highlights global trends of employment. The report noted that the sub-Saharan African region which is characterized by high informal employment would experience a 3.1 percent employment growth in 20205. However, this growth will be counteracted by the displacement of workers as a result of the COVID-19 pandemic. In March, the ILO noted that 38 percent of the global workforce would be displaced6 as a result of the pandemic. The high informal nature of the workforce in Nigeria, as well as limited social protection, stands to increase population vulnerability. Within Nigeria, the unemployment rate which stood at 23.1 percent in Q32018 has been steadily rising from Q12016 (10.4 percent)7. The current economic lockdown in addition to volatile global commodities markets further stands to drive the unemployment rate upward. One way to mitigate the impact is through a committed national economic diversification drive. Also, social investment and intervention programs should be strengthened and institutionalized to ameliorate the effect of poverty and unemployment on citizens.  

The Federation Account Allocation Committee (FAAC) disbursed the sum of ₦647.35 billion to the federal, state and local of governments in February which is 9.6 percent lower than the ₦716.30 billion disbursed in January1,2. Disaggregated data shows the federal, state, and local governments received ₦267.39 billion, ₦176.92 billion, and ₦132.94 billion respectively. This decline comes as a result of a decline in revenue generated due to the fall in oil prices associated with the coronavirus pandemic. Relatedly, the federal government has revised the 2020 budget in order to account for a decline in oil revenue which includes a 20 percent cut in capital projects. Going forward, there would be a further decline in the federal allocation as the mainstay of the government’s revenue is hit by the pandemic. Sub-national governments should endeavor to generate substantial revenue to free them from the volatilities of oil prices. Aside from tax, the government should leverage on the pandemic by equipping locals to boost the production of domestic commodities in import-substitution sectors.  

Faced with an invisible and novel enemy to fight, governments across the globe have deliberately shut down their economies and placed cities on lockdown in order to stem the spread of the COVID-19 virus. In Nigeria, two states and the federal capital territory, have so far enforced a total lockdown, while other control measures have been implemented in other states. These mitigation strategies, albeit necessary, have affected the livelihood of most citizens, especially those operating in the informal sector who rely on daily incomes for survival. The Federal Government has introduced various social protection policies to support vulnerable groups during the COVID-19 crises. These policies are primarily targeted towards the 2.6million households on the social registry for the vulnerable, and an additional 1 million households are to be provided conditional cash transfer for 2months. 

The present social registry uses a three-stage targeting process based on geographical targeting, community-based validation, and proxy-means-testing (PMT) in order to identify the poorest of the poor in Nigeria. With over 90 million Nigerians living in extreme poverty, the social registry covers only about 2% of the poor, excluding many households given the enormous financial requirement for universal social protection. While the coronavirus lockdown will negatively affect most Nigerians, the impact will vary markedly across groups, even amongst the poor. There are legitimate questions about the suitability of the existing social registry as a reference for the groups most vulnerable to the economic shocks induced by the coronavirus lockdown. 

For the COVID-19 social protection interventions to be effective in curbing severe drops in basic consumption (largely food and housing), they need to be well targeted to those most vulnerable to Covid-19 shocks. Those most likely to be affected by COVID-19 lockdown measures are not necessarily the most vulnerable groups nationwide, and are likely to be missing from the social registry used for the Federal Government’s social protection measures.

What is known about the current social protection registry is that it largely covers agricultural and rural households, especially those with human capacity constraints. However, these groups are also less likely to be negatively affected by the economic shocks induced by the lockdown for a number of reasons: First, they are largely isolated from the major economic centers, being primarily rural and agricultural, hence basic livelihoods remain minimally unaffected by the lockdown. Second, the transportation of food items is excluded from the lockdown, which means that rural farmers may continue to get their produce to markets. Third, and more important, most households in this group produce a majority of what they consume, and are therefore better able to maintain basic consumption levels during the lockdown.

In order to more effectively target groups of the poor that are most vulnerable to negative consumption shocks during the COVID-19 lockdown, we need to ask, in the most basic terms: which groups of people need to earn an income every day in order to purchase food? Put another way, poor households whose basic income and consumption patterns are more closely tied to the market would be most likely to be negatively affected by the lockdown. In this piece, we profile the characteristics of the groups that are most likely to be affected by the government lockdown and restriction of economic activities vis-à-vis those on the social registry, explain why COVID-19 social protection interventions ought to be better targeted to these groups, and suggest ways to improve poverty targeting for those affected by the coronavirus shock. 

Using data from the Nigeria Demographic and Health surveys (2008 and 2013), we find that the urban poor is more likely to work in non-agricultural occupations, which often involves commuting between suburbs and satellite towns into the urban core. Here, we may think of drivers, cleaners, sales associates, and operators of micro-enterprises, etc. Incomes from these occupations that involve work in the city’s core are the most likely to be affected by the lockdown in economic activities. While most agricultural activities will slow down, the exception to food transportation, storage, and sales, means that income loss here will be minimized. Furthermore, data from the National Living Standards survey (2010) shows that 64% of the food consumed by the poor in rural areas comes from food that they produce themselves (auto-consumption), compared to just 22% for poor urban households. This implies that the urban poor is significantly more likely to experience a greater decrease in food consumption with a decrease in market income. 

Overall, the data reveal that the urban poor are more likely to suffer a decline in incomes as a result of the economic lockdown introduced to control the spread of COVID-19. As a result, the urban poor is also substantially more likely to suffer a decrease in food and other consumption, because unlike rural households, they largely consume what they are able to buy from market incomes. The urban poor have their livelihoods more closely tied to the market, and with a market shutdown, they are better targets for supplementary incomes/consumption intended to alleviate the hardships induced by COVID-19. This category of the poor is largely underrepresented in the current social protection registry.

Alternative Targeting Mechanism for the Urban Poor

The preceding discussion highlighted the inadequacy of the present social register as the urban poor are not sufficiently captured. However, it is difficult or impossible to rebuild or update the social registry in the midst of the pandemic. The government will need to explore alternative targeting mechanisms in the immediate term. One key characteristic of the urban poor is that they mostly live in slums, which enables them to minimize rental costs in cities. Social security targeted at the slums and other geographical locations where the urban poor people reside will be crucial.  The Government can also leverage on the social infrastructure and local knowledge of non-governmental organizations (NGOs) that have worked with urban poor in the past. With proper accountability in place, non-state actors can assist in the identification of the vulnerable households and suggest other effective ways of reaching them. This suggests a combination of geographic targeting complemented by community identification.

The efficacy of targeting through direct deposit into individuals’ accounts using their unique Bank Verification Number (BVN) will be weak in the present circumstances. With 36.8% of the adult population in Nigeria still financially excluded, targeting only those with a low balance in their account will exclude the most vulnerable people, who are less likely to have a bank account, and might find it more difficult to get into a bank location where they are able to withdraw cash. Further, using the banking approach also means individuals rather than households will be targeted. Without a quality system for auditing to check duplication, using BVN alone is susceptible to abuse. In some households, multiple members might be able to take advantage of the palliatives at the expense of financially excluded households. 

Irrespective of the mechanism adopted by the government, it is important to emphasize that apart from food security, adequate measures are required to prevent the spread of COVID-19 among urban poor. The optimal poverty targeting for the urban poor must, therefore, incorporate social distancing at its core.

According to UNESCO, about 35.9 million primary and secondary school learners are currently out-of-school as a result of the school closures. For primary schools, this number totals approximately 25.6 million students, of which about 87 percent (23.5 million) are students enrolled in public schools. The numbers are just as stark for secondary school learners. Of the roughly 10.3 million secondary school students who are out-of-school as a result of the closures, approximately 81 percent (8.4 million) of them are public school students.
In Nigeria, school opportunity is correlated to income level, and public schools differ from private schools in the populations they serve. While private schools serve learners from higher socio-economic backgrounds who are willing and able to pay more to access the better resources offered by private schools, public schools which are usually free, comprise students from lower socio-economic households and low-income areas. In instances where distance learning opportunities are available, uptake will be low from the students in the public school's category, as a result of poor infrastructure such as no electricity, or poor/no internet connectivity, etc.
Opportunities to learn within the homes are also limited, given that a parent’s ability to provide education support to their children will be shaped by their own level of educational attainment, general literacy level, and other commitments. Given the significant relationship between educational attainment and income level, and the correlation between parentals income level and school choice, we can infer that the literacy level of parents in public schools in Nigeria might be lower than their private school counterparts. In instances where the parents are educated, investing the time in training their children during this time might be a luxury.
For Nigeria, the reality is simple - while the school closures are necessary to curtail the spread of the COVID-19 virus until the ban on movement is lifted and schools are reopened, the majority of students will not be learning.