Africa’s debt burden threatens to slow post-COVID economic recovery | Africa | DW
The debt-to-GDP ratio of 12 sub-Saharan African countries greatly exceeded the International Monetary Fund (IMF) recommended threshold of 45% for low- and middle-income countries, raising alarm bells about the severity of the crisis. Africa’s debt as the continent turns to post-pandemic economic recovery.
South Africa, Guinea Bissau, Eritrea, Ghana, Togo, Sierra Leone, Gabon, Congo, Angola, Mozambique, Kenya and Zambia all have debt totaling over 70 % of their respective gross domestic product (GDP), according to the most recent data. from IMF and the World Bank.
Some of the debt may be linked to an increased appetite for borrowing, with several governments insisting that the money must be spent on improving pandemic response programs and strengthening economic reforms.
But not everyone agrees that this is a prudent move. Kenya-based financial expert Aly-Khan Satchu told DW that the “cumulative rate of borrowing [far exceeds] the capacity of these countries to absorb or spend wisely.
“We are in a crisis,” he said. “COVID is the accelerator of the crisis, but the crisis has arrived.”
Zambian debt equals GDP
With total public debt exceeding nearly $ 27 billion (â¬ 24 billion), Zambia became the first African country in the era of the pandemic to be on the sovereign defaults list – the failure of a government to repay its debt when due – at the end of 2020.
According to Zambian development analyst Charity Musamba, “Zambia’s stock of debt is huge and can wipe out the country’s entire resource envelope.”
“This is the situation we are already anticipating for 2027 when one of our major loans comes due,” she told DW.
Zambia’s external debt is widely distributed among various states, banks and multilateral institutions, with at least $ 6 billion (â¬ 5.3 billion) owed to China.
Debt concerns for the southern African country are expected to weigh heavily on its much-desired post-pandemic economic recovery, which is being assumed by President Hakainde Hichilema after just three months in office.
âWe are in big trouble,â Musamba said. “The outstanding debt has reached a level where it is qualified as a crisis and its consequences are already being felt.”
Much of Zambia’s debt is owed to China, with whom it has collaborated on many development projects
Kenya braces for looming crisis
The debt burden shock felt in southern Africa has also spread to countries in East Africa, with Kenya currently in urgent talks to try to avert its own looming crisis.
Kenya’s current debt-to-GDP ratio currently stands at 70%, for a total of $ 70.8 billion (â¬ 62.57 billion). In February, lawmakers raised the country’s debt ceiling to $ 82.30 billion (â¬ 72.73 billion) in anticipation of the next tough years.
Satchu insists Kenya’s debt problems come as no surprise.
âWe have been in a tunnel, we have seen the light coming towards us,â he said. “We knew the train was coming and now the train has arrived.”
“We are likely to see debt restructuring and the government resort to austerity measures,” he added. “It means higher taxes, a rise in the cost of living and – in the worst case scenario – weakening currencies.”
Part of Kenyan President Uhuru Kenyatta’s economic strategy has focused on borrowing abroad to finance infrastructure projects
Kenya’s national treasury last week sounded the alarm bells unusually over the country’s borrowing rate, warning that it could follow in Zambia’s footsteps if action is not taken.
Since coming to power in 2013, President Uhuru Kenyatta has prioritized the construction of infrastructure such as roads and railways, which has involved a significant amount of borrowing.
But some still defend the president’s borrowing strategy. Wohoro Ndoho, the former head of debt at the finance ministry, believes this has prepared the country for better long-term foreign investment.
“The very reason Kenya has accumulated a huge debt-financed infrastructure asset base is the main reason the country has become a preferred destination for foreign investment,” he told DW.
However, Satchu pointed out that many infrastructure projects are not as successful as they claim.
âThe biggest loan was the construction of the standard gauge railway line,â he said. âIt was supposed to go all the way to Uganda, but currently it has stopped nowhere in a small village with no roads. I don’t know what you call this reasonable investment.â
Costing $ 3.6 billion, Kenya’s Standard Gauge Railway (SGR) line has been the country’s most expensive infrastructure project since independence
Debt Problems Still “Top Secret”
However, although the debt crises of several African states are well documented, debt issues are still rarely mentioned in public discourse.
According to Charity Musamba from Zambia, this given the dominance of the elite on the subject.
âDebt issues are very secret,â she said. “The systems that are used by sub-Saharan countries are not transparent, not participatory and lack accountability.”
But – in Zambia at least – that trend appears to be changing, with increasing numbers of Zambians demanding greater involvement in their country’s debt issues.
âI am very concerned about our debt because when you have too much debt it affects service delivery,â Zambian citizen Loyd Mwakwa told DW. “I think we need to be consulted because it is a democracy and it is we, the taxpayers, who are affected.”
DW has also reached out to Kenyans who wish to see more frank discussions among their leaders on the debt issue.
âWe need a team of people who can represent our voices so that we can have a certain level of participation,â Saalim Onyango said. “Without it, we are doomed to a level of debt in our country.”
Edited by: Ineke Mules