Debt interest payments taking away large portion of revenue that could help achieve Sustainable Development Goals
Photo: ECA / X (formerly Twitter) Africa’s debt crisis is high on the agenda of the meeting of the continent’s finance ministers taking place in Zimbabwe, as it is seen increasingly taking the scant resources that could be channelled towards development programmes.
The finance, planning and economic development ministers from the 54 countries in the continent gathered for a weeklong meeting in the resort town of Victoria Falls see sovereign debt as one of the biggest crises facing the continent.
The ministers said debt interest payments are taking away a large portion of revenue that ought to be going towards development efforts that include the push towards the attainment of the Sustainable Development Goals (SDG).
African countries’ total debt stands at over $1.8 trillion, with some of them – like Ethiopia, Zambia and the Gambia – already defaulting on payments, while 21 others are in severe debt distress, meaning that they are having difficulties in meeting their debt obligations. The default by the three African countries has triggered fears of a broader sovereign debt crisis on the continent.
The pain from higher borrowing costs is being felt in many capitals as these highly indebted African countries face hard trade-offs between servicing expensive debt, supporting high and growing development needs, and stabilising domestic currencies.
The Economic Commission for Africa (ECA), which organised this 42nd edition of the meeting of the Committee of Experts of the Conference of Ministers of Finance, Planning and Economic Development (COM2024), said it estimates that debt servicing costs now exceed 10 per cent of the average gross domestic product (GDP) of African countries – almost double their average expenditure on the provision of public health services.
“The shrinking fiscal space of many African countries has necessitated significant cuts in spending, including on infrastructure development, education and job creation,” said ECA in the event’s concern note. “This does not mean that those African governments are insolvent, but rather that they continue to face temporary liquidity challenges stemming primarily from economic shocks that the current global financial architecture has proven unable to address effectively.”
The ministers noted that 56 per cent of African countries are now spending more on debt interest payments than what they spend either on healthcare or climate action.
They also expressed concern that the average debt-to-GDP on the continent has increased from 39 per cent to 70 per cent over the past decade.
For the sub-Saharan Africa region alone, the level of indebtedness is high, at $833 billion as of 2022, said Zimbabwe’s finance minister, Mthluli Ncube, who is the host of this year’s event.
“According to the International Monetary Fund, median public debt ratios have increased by about 30 percentage points, from 28.8 per cent of GDP in 2012 to 59.1 per cent in 2022,” the minister added.
“The increases over the last decade are due to a series of shocks, including the COVID-19 pandemic, climate-related events, natural disasters and high international prices for food, fuel, and fertilizers in the aftermath of geopolitical conflicts.”
Claver Gatete, the United Nations Under-Secretary-General who is also the ECA Executive Secretary, told the delegates that estimates by the Group of 20 (G20) economic bloc are that for Africa to make meaningful progress, it needs an additional spending of $1.8 trillion for climate action and $1.2 trillion for development financing by 2030.
“Yet, shrinking fiscal space is now the single most important issue for African ministers of Finance, Planning and Economy,” Gatete pointed out. “Debt has increased by over 180 per cent since 2010, and 21 countries are now at risk of, or in, debt distress. This is notwithstanding the annual loss of at least five per cent of GDP because of climate change. In addition, the private sector is being squeezed out. Therefore, the natural question that confronts us is ‘where will all these resources come from?’”
The global financial system is among the factors behind the crushing debt of the continent. It needs a complete overhaul to make it responsive to Africa’s special conditions and needs, the representatives noted in this meeting as well as previous ones.
The fiscal challenges that African government are currently facing cannot be traced only to the Covid-19 global pandemic or recent conflicts, Gatete said. “These recent shocks only exacerbated historic structural issues rooted in a global financial architecture that is not fit for today’s world,” Gatete said. “Simply put, the existing multilateral financial system does not represent the needs of Africa.”
He said this should not come as a surprise because the prevailing international financial architecture was established at a time when many African countries were not yet there.
“In 1945, when the United Nations was created, the five permanent members of the Security Council, namely China, the United States, the United Kingdom, France and Russia, made up almost 50 per cent of the world’s population. Today, that figure is just 26 per cent. And while Africa now represents nearly 20 per cent of global population, it is not represented at the G7, whose proportion of global population is only 9.7 per cent. So, how do you solve today’s problems with outdated eighty-year-old structures that do not reflect the global shifts that have occurred?”
Ncube concurred: “I would like to join others who have called for the reform of the global financial architecture. There is a need to relook at the international financial architecture to ensure that it is fit for purpose, to support African countries to attain Agenda 2063 aspirations, to achieve the SDGs by 2030 and, above all, to reduce poverty which is the main challenge on our continent.”
As the sovereign debt crisis spreads across Africa, some of the countries have resorted to seeking debt relief or loan restructuring. Others are have gone for swapping debt and climate finance or green investments.
For instance, last year Cape Verde struck a debt-for-climate deal with Portugal, with the former colonial master agreeing to write off an initial $13 million the African nation owed it. Media reports also noted that Ghana has also sought and won a moratorium on debt payments with official creditors until May 2026, as it simultaneously seeks to finalise a deal with Eurobond investors to restructure its $13 billion debt by the end of March.
Ghana’s public debt has more than doubled since 2012 and amounts to 85 per cent of GDP. Zambia’s debt stood at 98 per cent of GDP as of 2022.
At 74 per cent and 70 per cent of GDP, South Africa and Kenya are also considered to be on the edge of financial distress as their foreign debts have been growing steadily over the years.
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