Africa's debt problem requires collective action

Africa's external debt has risen to concerning levels over the past decade. Africa's proportion of global external debt has grown from about 19% of GDP in 2010 to almost 29% in 2022. During the same time period, its external debt as a percentage of exports increased from 74.5% to 140%.

 Only a small number of the continent’s highly indebted nations have defaulted despite their unmanageable debt loads. One of them is Ghana, the other is Zambia. (Creative Commons)

According to the IMF, a total of 49 African nations owe 39% of their debt to multilateral organizations, 35% to private creditors, and 12% of the continent's total debt to Chinese lenders.

In 2022, South Africa had the greatest stock of foreign debt in Sub-Saharan Africa with an external debt of over 170 billion dollars. The next two countries, with the largest debt stocks are Nigeria and Angola, that have debts of 76.2 billion and 67.3 billion dollars, respectively. 

Thus far, only a small number of the continent’s highly indebted nations have defaulted despite their unmanageable debt loads. Only two countries, Ghana and Zambia, have stopped paying their foreign loans. Other countries like Chad, and Malawi, have been working hard to restructure their debts, but are also under continual risk of default.

Africa’s debt problem has been years in the making. Several African nations between the years 2000 and 2010, began to aggressively go beyond low-interest loans from multilateral organizations and ventured into borrowing from capital markets mostly to finance ambitious development initiatives. A total of 21 African nations began borrowing on international capital markets between 2007 and 2020, many of them for the first time. Between 2000 and 2020, Chinese investors lent $160 billion to African nations, a debt burden many are struggling to even service today. Decisions to issue Euro bonds by several African nations have also proven to be disastrous exasperating the debt problem even further. 

Africa’s external debt problem is the result of both external shocks, and simple economic mismanagement. The external debt problem was partly prompted by COVID, the war in Ukraine, higher food and fuel prices, and a strong dollar; all externalities. As over 60 percent of Africa’s external debt is in US dollars, a strong dollar has also put enormous stress on state budgets to buy the greenback necessary to service external debt.

But, the actions of several African nations are also to blame for the current crisis. Several African nations over extended themselves with debt in an attempt to quickly grow and diversify their economies. They borrowed from both domestic and foreign creditors in excess, including local banks, insurance companies, and pension funds. The magnitude and types of debt several of these countries assumed is unprecedented.

Africa’s external debt now threatens to upend the economies of scores of nations. Without a continent wide solution, Africa’s debt has the potential to unravel gains in education, health care and incomes. Africa now needs a collective solution to a collective debt problem.