Sub-Saharan African countries are facing a debt crisis that could jeopardize their public services, such as health and education, and hamper their economic recovery. The International Monetary Fund (IMF) has urged them to raise more taxes and cut fuel subsidies, but these measures are unpopular and politically risky.
The region has been hit by multiple shocks since 2020, from the pandemic to Russia’s invasion of Ukraine and rising U.S. interest rates. These have increased the cost of borrowing and servicing debt, which has already doubled to 60% of GDP in the last decade. Many governments have had to slash spending when they need more resources to cope with the continent’s booming population and climate change. Some have also seen violent protests against tax hikes and subsidy removals.
In Kenya, for example, the cabinet ordered a 10% cut in operational budgets for government departments and ministries for the fiscal year ending in June 2024. The country faces a looming debt repayment of $2 billion next June.
In Angola, an oil-dependent country where production has been lower than expected, the finance minister said the country was going through “extreme austerity”. The country froze some non-social spending two months ago, such as capital expenditure on projects that are less than 80% complete.
Developing countries’ interest payments have grown faster than public spending on health, education and investment over the last decade, a United Nations report showed in July. Sub-Saharan Africa’s ratio of debt interest payments to government revenues of about 10.5% has more than doubled in the last decade and is about three times that of developed countries, according to the IMF.
In some countries, that ratio is much higher. Ratings agency Fitch forecasts it will reach 40% in Nigeria and 28% in Kenya next year. High interest rates make refinancing debt prohibitively expensive for most African countries and have weakened their currencies against the U.S. dollar.
Public spending could drop in real terms for the next five years in 26 Sub-Saharan African countries, according to forecasts by Oxfam International, an anti-poverty NGO. “If you educate the people, you’re also going to increase productivity, you’re also going to increase human capital,” said Anthony Kamande, Oxfam’s inequality research coordinator.
“But how are they going to do that if they do not have money, if the little that they have they are just spending on debt servicing?” Some governments are taking the advice doled out by the IMF to cut fossil fuel subsidies that the fund says benefit wealthier people. Senegal, Angola and Nigeria are among the African countries that have started to remove the costly but popular benefit.
In Angola, their partial removal earlier this year sparked deadly protests and its finance minister said it was considering slowing plans to axe the rest of the subsidies by 2025. The IMF has warned that if Angola does not do so, then it will have much lower financial buffers to weather more economic shocks, such as falling oil prices.
Some countries have also decided to restructure their debts after defaulting or facing difficulties in servicing them. Zambia, for example, reached a deal with its creditors last month after defaulting in 2020 and implementing economic reforms. “For us, the most important thing was to accept that we have a problem,” Zambia’s finance minister Situmbeko Musokotwane told reporters last week. “To be able to pay for every child in school, we had to end subsidies on fuel because we could not do both,” he said. “We had to make those hard choices.”
The IMF has also provided financial support and debt relief to some African countries to help them cope with the crisis. It has approved more than $15 billion in emergency financing for 46 Sub-Saharan African countries since March 2020. The fund has also called for more international cooperation and solidarity to help Africa overcome its challenges. It has urged rich countries to provide more aid, debt relief and vaccine donations to the continent.
The IMF’s managing director Kristalina Georgieva said last week that Africa had a bright future ahead if it could overcome its current difficulties. “Africa is a continent of incredible dynamism, resilience and potential,” she said. “Together, we can help unlock that potential and build a more prosperous and inclusive future for all Africans.”
Source: Reuters
