Africa’s Debt Burden

Africa’s debt burden has grown significantly over the years and is a massive challenge on the continent as 23 countries are in financial distress, and three have defaulted. While debt serves a critical function for development, the rate at which it is rising has constrained and limited many African countries’ ability to cope with future crises or invest in growth. In 2022, Africa’s public debt, which is the total amount of money owed to the public by the government to meet development in Africa, reached USD 1.8 trillion. While this is a fraction of the overall outstanding debt of developing countries, Africa’s debt has increased by 183% since 2010, roughly four times higher than its GDP growth rate in dollar terms. The AU’s ascension to the G20 in September 2023 poses a moment for advocating for international financial institutions’ reform and Africa’s debt sustainability.

Africa’s debt burden can be traced back to the colonial era and the early years of independence. Newly independent African nations sought to build infrastructure and stimulate economic growth, often relying on foreign loans. However, many of these loans were acquired under unfavourable terms, leading to high levels of debt. In the 1980s and 1990s, structural adjustment programmes (SAPs) imposed by the International Monetary Fund (IMF) and World Bank further exacerbated the debt situation. Countries like Nigeria and Kenya, which underwent these programs, were required to implement austerity measures, liberalise their economies, and devalue their currencies. While these policies were intended to stabilise economies and encourage growth, they often increased poverty and social unrest. By the 2000s, Africa’s debt crisis had reached alarming levels, prompting initiatives such as the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI). These programs aimed to reduce the debt burden of the world’s poorest countries, many of which were in Africa.

Nations like Nigeria, South Africa, and Egypt have some of the highest debt levels. Zambia, for instance, defaulted on its debt in 2020, highlighting the severity of the debt crisis. Mozambique, grappling with hidden debt scandals, also faces immense financial strain. Traditionally reliant on bilateral and multilateral loans, many African countries have increasingly turned to private creditors and international bond markets. This shift has resulted in higher interest rates and shorter repayment periods, further complicating debt management. Several factors contribute to Africa’s escalating debt burden. For example, African economies are often heavily dependent on commodity exports, making them vulnerable to global price fluctuations. Countries like Angola and Nigeria, reliant on oil exports, faced severe economic downturns when oil prices plummeted in the mid-2010s. Governance issues, corruption, and mismanagement of funds have also exacerbated the debt crisis. Political instability and poor governance have led to economic mismanagement and increased borrowing in countries like Zimbabwe and Sudan.

Global financial conditions and the policies of international creditors play a significant role. The conditionalities attached to loans from institutions like the IMF often require austerity measures that can stifle economic growth and social development. One issue that has kept Africa in the debt cycle is the short time frames for debt repayment. According to Senegal’s former president, Macky Sall, “Apart from few exceptional cases, our countries are often obliged to repay debts for significant amounts and long-term infrastructure in very short time frames.” Since the COVID-19 economic fallout, various meetings have tried to address debt relief for low- and middle-income countries, particularly in Africa. These include the June 2023 Paris Financing Pact summit, the December 2023 United Nations Climate Change Conference (COP28) and the April 2024 International Monetary Fund and World Bank Spring meeting. Other initiatives have been undertaken to alleviate Africa’s debt burden, such as the HIPC and MDRI. These programs have provided significant debt relief to eligible countries, reducing their debt stock and freeing up resources for development. For example, Ghana and Tanzania benefited substantially from these initiatives, allowing them to increase health and education spending. Also, the G20 Debt Service Suspension Initiative (DSSI) was launched in response to the COVID-19 pandemic. The DSSI provided temporary relief by suspending debt service payments for eligible countries. However, the initiative faced criticism for its limited scope and temporary nature.

Despite these efforts, many challenges remain. Implementing effective debt relief requires political will, accountability, and transparency. Corruption and mismanagement can undermine the benefits of debt relief, as seen in Mozambique’s hidden debt scandal. Hence, the global architecture of the financial system and debt must be reformed to reduce costs, time frames and the legal complications of restructuring African countries’ debt. Improving governance, enhancing transparency, and strengthening institutions are crucial steps. Diversifying economies to reduce dependence on commodities can also mitigate the impact of global price fluctuations. Rwanda’s focus on technology and service sectors provides a successful model of economic diversification. Exploring innovative solutions like debt-for-climate swaps can provide mutual benefits. For example, Seychelles successfully implemented a debt-for-nature swap, allowing it to invest in marine conservation while reducing its debt burden. Regional cooperation, such as the African Continental Free Trade Area (AfCFTA), can promote economic integration and resilience. Collaborative efforts between African governments, international organisations, and the global community are essential for achieving financial stability and sustainable development.