More than 20 years after global efforts to relieve African national debts, the issue is once again in the headlines. Which countries are at risk, what is at stake, and why is it all so political?

National debt levels have grown rapidly since early 2020. The campaign group Debt Justice rates 54 countries worldwide as currently in debt crisis, up from 31 in 2018. According to a recent UN report, 24 of the low-income countries at risk of debt distress are in Africa. Worryingly, Nigeria and Egypt, the biggest African economies, are on that list.

Who’s in Distress?

At the forefront of discussions over apparently unsustainable debt and potential defaults and rescheduling are Ghana, Zambia and Ethiopia. Others including Kenya, Egypt and Nigeria are close behind.

In February, Ghana missed an important repayment deadline. This in turn triggered a devaluation of its Eurobond holdings. The government has been in negotiations with the IMF and others for a temporary bailout and debt restructuring. Investors have been moving money out in response to news of a struggling treasury and accusations of spending largesse. Fitch has downgraded the country’s credit rating from ‘C’ to ‘D’ – making future lending more expensive.

Zambia owes an estimated $17 billion to foreign creditors. It defaulted in 2020, requiring an IMF bailout. Bad local policy and practice is arguably to blame, while the impact of global Covid-19 restrictions also played a part. The country’s largest single creditor is China, though multilaterals and private lenders hold larger stakes combined. There is no overarching framework to negotiate rescheduling of private sector debt. The recently elected reformist Zambian government has sought to distance itself from its predecessor’s legacy and gain a restructuring agreement with China.

Ethiopia, too, is negotiating with China (alongside Western creditors and the IMF). The country’s economy has been wracked by a disastrous war, as well as the impact of Covid-19 restrictions. In 2020, Ethiopia sought relief under the G20 framework. With a Western country (France) and China as co-chairs, it might have been hoped that the common framework could transcend geopolitical difficulties. But progress has been glacial, despite high-level visits to Beijing. Again, the multilaterals and China point to each other as the blockers. Which debts and which lenders are included – even Chinese debts are both commercial and state-owned – is a key issue.
What’s Going On?

The problem has been looming since 2020, when half of sub-Saharan Africa’s low-income countries were already in debt distress or at high risk of it. The IMF economic outlook for sub-Saharan Africa in 2020 projected an overall financing gap of $290 billion to 2023.

Many indebted African countries have similar characteristics: dependency on commodity exports and a low tax base are common

A number of different explanations are on offer for the current issues. Some commentators – as was the case in the 1980s and 1990s – stress economic mismanagement and corruption as the cause. Clearly, that issue has not gone away. Others point to structural factors or global economic events. At home, many indebted African countries have similar characteristics: dependency on commodity exports and a low tax base are common. Poor access to capital markets can also push countries towards expensive lenders – private lending to African countries can cost 10 times the rate that developed countries enjoy. Yet all are linked to a changing global economy that has become increasingly volatile for political as well as economic reasons.

Many African economies had been growing fast in the last 10–15 years. Ethiopia is a case in point: in the 2010s it registered one of the highest growth rates worldwide. Low-cost loans, periodic commodity price rises, sound investments and better policy decisions were all factors that contributed to continental growth and narratives of ‘Africa Rising’. With that growth came the leeway to take new loans, whether from concessional or commercial lenders. Many countries did so, often investing wisely, including in much-needed infrastructure. World Bank figures show Africa’s long-term loans more than doubling to $636 billion between 2011 and 2021.

The terms on offer, however, varied widely, as we shall see below. Most of this debt was serviceable, even as over the decade the costs of dollarised payments increased with the value of USD. But subsequent global economic trends created unfavourable headwinds for borrowers. Unprecedented economic shocks hit the African continent from March 2020 onwards. First, the economic turmoil produced by Covid-19-associated shutdowns, travel and trade restrictions produced the worst recession on record across Africa. GDP fell on average by 4–5%. (Outliers like Tanzania resisted WHO policy advice on lockdowns and continued to grow). As a result, three African countries defaulted on debt payments.

Global restrictions linked to Covid-19 went on to play a part in current global inflation. But the Russia–Ukraine war created fresh stress for Africa. A few countries that export oil and gas may have won out, but most have struggled as the price of key commodities has skyrocketed. Although in some cases costs had risen prior to February 2020, fuel and food oils, gas, wheat and fertiliser prices have often risen to unaffordable levels.

From Economics to Geopolitics

Recognising the importance of the issue, UN Secretary General Antonio Guterres has called for widespread debt cancellation. Others have blamed the multilateral lending institutions. Kenyan President William Ruto called for a redesign of the IMF, the World Bank and associated lenders.

In early March, G20 ministers met in India. Debt relief for stressed African economies and others such as Sri Lanka was high on the agenda. An existing mechanism for relief for low-income countries was supposed to come under scrutiny. The G20 Debt Service Suspension Initiative was used during the Covid-19 pandemic to defer repayments, but is notoriously slow. A review of the mechanism appears to have fallen foul of a crowded agenda and ongoing arguments between great powers. This is both disappointing and ironic, as proposals floated recently for African representation within the G20 have received broad backing.

Current blockages on debt relief reveal the dysfunctionality of the international lending architecture, but also hint at wider issues with international development financing

Behind the scenes, the big multilateral lenders – the IMF and the World Bank (and by implication the US as the largest shareholder) – have looked increasingly to be in a standoff with China over lending. Each side has advanced valid arguments. The Chinese government has emphasised the need for the multilaterals to reform. It has pointed to the large sums of Western private debt alongside multilateral concessional loans that stressed countries hold. It wants the multilateral lenders to take what it calls a ‘haircut’ on planned repayments. The IMF and World Bank, however, have been stating that their loans are already concessional. They also argue that major changes to lending could compromise their own ability to finance cheap loans.

Until now, both sides have accepted that there is a problem, but neither has wanted to set a precedent. This may be because economic arguments are only one aspect of the problem. It has started to look as if international lending to debt-distressed countries is being dragged into the great power contestation over preserving or amending the ‘rules-based international system’ – such as it is. As Russian, US, EU, UK and French politicians have toured the African continent in search of support these past years, references to each other’s failings have been voiced. In the US Congress, blame has recently been heaped on China as an unscrupulous lender and investor in Africa. In recent years, a largely unsubstantiated narrative has developed around a Chinese ‘debt trap’ – the idea that China lends to create dependency among recipients. The Chinese government is dissatisfied with its shareholding and voting rights in the multilateral lending bodies established after the Second World War. Meanwhile, it is keen to promote its recently established sovereign lending institution, the Asian Infrastructure Investment Bank, and the BRICS-backed New Development Bank. Both are seen as counterweights to the more Western-oriented lending institutions.

Early Moves

Recently, however, China agreed to a restructuring proposal from the government of Sri Lanka. This should unlock a $2.9 billion emergency loan from the IMF. Whether the same flexibility will be extended to Ethiopia, Ghana and Zambia is unclear, but the move may provide some hope to embattled African treasuries. Looking ahead, one wonders whether African states and the African Union can successfully come together on this agenda, crucial as it is to their future development and stability. Current blockages on debt relief reveal the dysfunctionality of the international lending architecture, but also hint at wider issues with international development financing. Alongside emerging multipolarity, there are questions here about Africa’s positioning in the global system. Meanwhile, narratives of crisis are double-edged. Flexibility and political focus will be needed to break the impasse, but talk of crisis might also place African states’ ability to access affordable loans at risk.

Most countries on the continent are facing a temporary liquidity problem. If they can ride out the current storm, there is every likelihood that they can repay their debts. The long-term challenge is to ensure that African countries can access sufficient volumes of the right kind of debt to fuel the investments they need. Paradoxically, more rather than less debt might be the way ahead – if the politics will allow it.