STUDY ON MANAGING SOVEREIGN DEBT IN TIMES OF CRISIS: Insights from the Covid-19 pandemic and lessons for the future

This executive summary details a study on sovereign debt management in the MEFMI region during the COVID-19 pandemic. It finds that the crisis led to sharp GDP contractions and a significant increase in the average debt-to-GDP ratio (rising to 70.6% in 2020). Countries responded with policy rate cuts, tax exemptions, and increased reliance on Local Currency Bond Markets (LCBMs). While international initiatives like the G20's DSSI provided critical relief, the pandemic exposed a lack of business continuity planning and operational risk management in debt offices.

• The COVID-19 pandemic caused a significant economic contraction and worsened fiscal positions across the MEFMI region in 2020. Average real GDP growth fell to -2.8 per cent, compared to 2.7 per cent in 2019, with all member countries experiencing contractions except for Malawi and Tanzania. The average fiscal deficit widened from -4.9 per cent of GDP in 2019 to -5.9 per cent in 2020.
• Public debt levels in the MEFMI region accelerated sharply during the pandemic, driven by declining GDP growth, rising fiscal deficits to fund health and economic rescue packages, and depreciating exchange rates. The average debt-to-GDP ratio rose from 28 per cent in 2011 to 63.6 per cent in 2019, and further increased to 70.6 per cent in 2020.
• MEFMI countries implemented various fiscal and monetary measures to mitigate the pandemic's impact. Fiscal responses included VAT/duty exemptions on health and essential goods, tax filing deferments, and expanded social protection. Monetary responses involved cutting policy rates—with the largest cuts in Zambia (350 bps), Lesotho (300 bps), and Namibia (275 bps)—and reducing statutory reserve requirements to inject liquidity.
• Local Currency Bond Markets (LCBMs) played a critical role in financing expenditures when international capital markets were inaccessible. Domestic debt increased significantly between 2020 and 2021. To manage this, countries used instruments such as treasury bonds, bills, and infrastructure bonds. While long-term bond issuance reduced refinancing risk, it increased interest costs in shallow markets.
• International support was vital for stability, particularly through the G20's Debt Service Suspension Initiative (DSSI) launched in April 2020, which allowed for the deferment of debt service payments. Five MEFMI countries benefited from the DSSI, with the impact ranging from 0.89 per cent of exports in Rwanda to 10.4 per cent in Kenya. Other support came from the IMF's Catastrophe Containment and Relief Trust (CCRT) and various IMF loan facilities.
• The pandemic exposed significant gaps in operational risk management, specifically a widespread absence of business continuity plans. The shift to remote work increased the vulnerability of Debt Management Offices to operational risks. The study recommends that MEFMI countries undertake gap analyses in business continuity plans and that the World Bank revise the DeMPA framework to include pandemic mitigation mechanisms.

APA

FSD Africa (n.d.). STUDY ON MANAGING SOVEREIGN DEBT IN TIMES OF CRISIS: Insights from the Covid-19 pandemic and lessons for the future. https://fsdafrica.org/wp-content/uploads/2025/05/MEFMI-Report-Summary.pdf

Chicago

FSD Africa. STUDY ON MANAGING SOVEREIGN DEBT IN TIMES OF CRISIS: Insights from the Covid-19 pandemic and lessons for the future. n.d. https://fsdafrica.org/wp-content/uploads/2025/05/MEFMI-Report-Summary.pdf.

Wikipedia

{{cite report |author=FSD Africa |title=STUDY ON MANAGING SOVEREIGN DEBT IN TIMES OF CRISIS: Insights from the Covid-19 pandemic and lessons for the future |url=https://fsdafrica.org/wp-content/uploads/2025/05/MEFMI-Report-Summary.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{fsdafricandstudy, author = {{FSD Africa}}, title = {{STUDY ON MANAGING SOVEREIGN DEBT IN TIMES OF CRISIS: Insights from the Covid-19 pandemic and lessons for the future}}, institution = {FSD Africa}, url = {https://fsdafrica.org/wp-content/uploads/2025/05/MEFMI-Report-Summary.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }