Dr Alex Awiti
The COVID-19 pandemic is exacerbating Africa’s economic turmoil. Experts now believe Africa’s debt could touch off a cascade of complex social, economic, political and even environmental predicaments.
China, Africa’s largest bilateral creditor, holds nearly 21 percent of the continent’s debt. Payments to China account for about 30 percent of debt service obligation in 2021, while multilateral lenders such as IMF and the World Bank account for 20 percent of Africa’s debt service. Bondholders account for 19 percent of the continent’s debt service obligation this year.
Sub-Saharan Africa’s public debt has climbed above 50 percent of GDP in more than half the countries. For example, according to the Central Bank, Kenya’s public debt was estimated at about US$70 billion, against GDP of about US$99 billion. South Africa’ debt is about 83 percent of its GDP.
With 40 percent of the region’s countries now at high risk of debt distress, Sub-Saharan Africa is careening into a new debt crisis. The proportion of countries in debt distress is double the proportion five years ago.
Debt distress looms when Africa economic growth contracted by over two percent owing to the pandemic. According to the African Development Bank, real GDP growth is projected to grow by a measly 3.4 percent in 2021.
While African countries are out of debt headroom, wealthy nations of Europe and North America borrowed nearly US$17 trillion, significantly increasing deficits during the pandemic. Unlike African countries, the wealthy nations can take gradual action thereafter, where needed, to bring debt ratios back to targeted levels.
African countries have not been so lucky.
It is no surprise that Africa’s is now the front and centre of post-pandemic global economic recovery. Some countries will need help with debt stocks, beyond repayments. Outright debt cancellations, longer suspension of servicing of repayments for the poorest countries must now dominate discussions on Africa’s debt.
Interest rates on public debt must get into the discussion.
African governments are paying interest of five to 16 percent on 10-year government bonds. This is in grotesque contrast to near zero to negative rates that prevail in Europe and North America.
Interest repayments account for the highest proportion and is the fastest expenditure line in the fiscal budget of most African countries.
Let’s face it, heavy debt servicing obligations carries grim and immediate implications for macroeconomic and political stability, and consequently undermines growth and economic development.
The number of African countries already unable to service their debts has doubled in the past year to eight, and the IMF is urging African countries to raise taxes on vital consumer goods to provide more scope for paying debt interest.
The recent uproar over fuel price hikes in Kenya could just be a tip of the iceberg. The burden of debt on the exchequer and its stranglehold on a revenue base that is on deadly chokehold from COVID-19 is perhaps the perfect storm.
We need a global debt model that caters for Africa’s fragile economies. – The StarDr Alex Awiti is Vice-Provost of Aga Khan University