Africa's debt problem is challenging its development gains
Africa is facing an extreme debt crisis. While only 2 African countries have defaulted on their external debt, the situation is precarious. Africa’s debt stock is now challenging the gains it has made in its social indicators.
The IMF Managing Director meets with Zambian leadership to discuss debt restructuring. Zambia is one of the few countries to default on its obligations in 2023. (Kim Haughton/Reuters)
At the end of 2022, African countries owed US$644.9 billion to external creditors. This means that African countries will have to pay US$68.9 billion in external debt service annually by the end of 2023. Debt service will grow substantially on Africa’s current debt stock through 2030.
More than 30 African nations are already paying more in interest to repay their debt than they are on healthcare. Ghana, Nigeria, and Kenya all spend more on interest payments than on healthcare, with Ghana spending five times as much. By 2030, more than 20 African countries will pay more on interest charges than they will for education.
A primary reason for Africa’s ever increasing external debt service is the higher interest being charged on private loans. This is in part because of the post COVID downgrades by rating agencies for a large number of African nations. This resulted in interest charges on private loans reaching all time highs. African countries currently pay four times more for borrowing than the United States, and eight times more than Europes richest countries.
Debt rescheduling to resolve this problem won’t be easy. The composition of African debt has changed significantly. Previously, the majority of Africa’s external debt was owed mostly to G7 countries, and multilateral development banks. Now, China and private creditors make up a large proportion of debt stocks, meaning more debt is non-concessional.
Yes, African nations can seek debt relief from institutions like the World Bank, the IMF, and other multilateral creditors, but China is now Africa’s biggest bilateral lender. The days when African nations could simply negotiate debt forgiveness at the Paris Club are over. China is not a member of the Paris Club. A correction won’t be as easy as another HIPC round either. A more inclusive formula for debt rescheduling, and for possible write-offs, will have to be found.
Some African nations have suggested pausing repayments on debt for two years, as a start. But, who are they talking to? Negotiations, with the AU in the lead, now that it has a permanent seat on the G20, might be a good start. China is a member of the G20.
Clearly, Africa’s current and projected debt service requirements, makes further advancement of the continent’s social indicators that much more precarious. Without a debt correction, gains in key social indicators like health and education are at risk of being lost. If this isn’t a crisis, I don’t know what is.