By Our
Staff Correspondent
Record commodity prices and low global interest rates have encouraged
African countries to borrow like they did in the 1990s, but now some are
struggling to pay up as their revenue slows along with economic growth.
Government debt as a percentage of
gross domestic product in sub-Saharan Africa has doubled in the past decade,
heading back toward the level it reached in 2000.
International Monetary Fund Managing
Director, Kristalina Georgieva, said in November this is a cause for concern.
Of the 54 countries on the continent,
20 are near or at distressed levels, according to the IMF, which means they
face difficulties honouring their obligations.
African governments have raised about
$26 billion in international markets this year, from close to $30 billion in
2018, as they took advantage of investors’ thirst for returns in a world awash
with negative yields.
Volatile currencies across the
continent increase the risks of borrowing in hard currency and the rising cost
of serving debt could crowd out other expenditure in a region that’s home to
more than half of the world’s poor people.
“The conditions are ripe for a much
higher level of debt distress,” Sonja Gibbs, head of sustainable finance at the
Institute of International Finance, said by phone. “Whatever triggers the next
crisis, when it happens, you are likely to see a high degree of contagion risk
because investors have been moving into higher-yielding assets.”
Still, the continent is far from a
debt crisis, its biggest multilateral lender says.
“Some individual countries are
getting to higher levels in terms of debt-to-GDP ratios, that’s the concern,”
African Development Bank President Akinwumi Adesina said in an interview. The
debt-to-GDP ratio of Africa is still “well within acceptable limits,” he said.
More reliance on commercial bonds has
raised servicing costs, diverting funds that could be spent on new roads or
schools. Nigeria, the continent’s top oil producer, spends about the same
amount every year on repaying debt as it does on infrastructure.
Countries such as South Africa, the
continent’s most industrialized economy, are raising debt levels and this year
had its biggest Eurobond issuance yet to help plug a widening budget deficit as
economic growth slows and public-sector wages and bailouts for state companies
sap resources.
External debt payments now eat up on
average about 13% of the revenue of African governments from 4.7% in 2010,
according to data compiled by the U.K.-based Jubilee Debt Campaign.
Overspending and crashing commodity
prices in the 1990s led to a debt crisis that prompted multilateral lenders and
rich nations to write off the obligations of dozens of African countries in
2005. This time around a debt pardon may not be that easy.
The complex debt structure with
opaque terms and mix of different creditors will make any potential
restructuring agreement more difficult.
“We’re concerned that debt relief
might now become more complicated,” said Jan Friederich, a senior director at
Fitch Ratings. “Nowadays there is a greater concern that governments, when they
forgive any debts, might not actually help the African countries very much, but
might primarily be bailing out the commercial creditors.” - Africa
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