Analysis in brief: Africa’s debt load has reached a crisis point. The repayment of monies borrowed to advance the development of African peoples is now inhibiting their economic and social development. No solutions are at hand, only an awareness that some way out is necessary for African countries drowning in debt.

The African debt crisis of the 1980s has returned 40 years later in a more devastating manifestation. While lessons were learned from the earlier crisis, unpredictable events occurred, such as the Covid-19 pandemic. During the 1980s, African nations borrowed to build transportation infrastructure, dams, hospitals, schools and a host of other developmental projects. When international prices fell for commodities on which national incomes relied, the resulting decrease in revenue made it impossible to service debt, leading countries to default. Lending institutions attempted debt restructuring, relief and even cancellation, with loan write-offs described as a means of foreign aid.

In 2024, global lending institutions face an even greater challenge because of higher than ever debt loads. At the start of the year, Africa’s total external debt stood at US$1.15-trillion, up from US$1.12-trillion a year before. Global interest rates are at their highest level since the debt crisis in the 1980s, which have compounded repayment costs for African countries. African nations will pay US$163-billion just to service debts this year, an annual amount that has nearly tripled in 15 years.

A crisis of continental proportions

Out of Africa’s 54 countries, 25 spend more on interest payments than health and food security. Likewise, 57% of Africa’s population (751-million people) live in countries where interest payments outweigh critical social programmes. African countries are struggling to repay loans and are unable to attain new loans because of their debts, failing to advance their UN Sustainable Development Goals, particularly in the fields of education, health and infrastructure. In 2024, seven African countries are spending more on interest payments than on education, in particular. In overall numbers, Africa’s debt load has increased 183% since 2010, about four times greater than Africa’s GDP.

However, recent global crises have given African countries no choice but to increase their debt as governments prioritised the survival of their peoples over future fiscal challenges. The Covid-19 pandemic required the importation of increased numbers of personal protective equipment to service health workers, emergency responders and the general population. Russia’s invasion of Ukraine interrupted deliveries from one of Africa’s principal grain suppliers, leading to unforeseen expenses. Additionally, global recessions in 2008 and 2020 reduced demand for African exports, further diminishing countries’ ability to earn revenue to repay loans. Despite these challenges, those loans must be repaid, and this year, African countries will spend US$90-billion on external debt service.

Debt relief is more problematic than ever

Unable to repay their loans during the 1980s debt crisis, African nations found some relief when multilateral creditors like the World Bank, the Islamic Development Bank and the African Development Bank wrote off debts. There seemed little alternative for these institutions after it became apparent that the indebted countries were not only unable to repay but that repayments were proving so ruinous they overturned the original intention of the loans, which was to build up countries. However, presently, African nations are more in debt to bilateral and private loaners than multilateral lending institutions. In 2022, Africa’s debt to multilateral creditors was US$224-billion. Bilateral creditors were led by China, whose outstanding African loans amounted to US$63-billion, while loans to other bilateral creditors were US$86-billion. While China has written off portions of some national loans, such as those of the Democratic Republic of Congo and Zimbabwe, this was done after repayments seemed unlikely. As a rule, China’s leadership has resisted debt forgiveness.

This comes when China’s loans, whose terms call for repayment within 10 years as opposed to 35 years for loans issued by the World Bank, are falling due. In 2023, Djibouti, whose debt to China is 45% of the country’s GDP, suspended its unaffordable loan repayments. Previously, Zambia was compelled to do the same. Next may be the country that holds a debt to China greater than any other African nation, Angola. The World Bank currently ranks Angola as being at high risk of what the bank calls ‘debt distress’. It is lost to no one that China is also a beneficiary of the loans it issues because funds lent are used to pay Chinese firms that build bridges, highways, railways and, with Djibouti, port facilities. Thousands of Chinese technicians, engineers and experts are employed on these projects. This is seen most strikingly in Ethiopia, where 80% of international contractors at work on public projects are Chinese.

In recent years, private creditors have become the largest lenders to African nations
Data source: International Debt Statistics

Each developed world nation lending money to Africa as a bilateral creditor has its own repayment policy, and few seem sympathetic to debt relief. That leaves private creditors to which Africa’s indebted nations might seek mercy. Private creditors are now Africa’s leading source of loans. In 2010, less than a third of Africa’s loans (30%) came from private creditors. By 2022, the amount had risen to 44%. Private loans are based on the global market’s interest rates and are thus more expensive than multilateral or bilateral loan deals in which the lender sets their own rates. Private creditors have been drawn to Africa more than any other economically disadvantaged region. From US$64-billion lent in 2010, private creditors lent US$268-billion to African nations in 2022, with private Chinese banks loaning and additional US$24-billion. These lenders are strictly in the for-profit business and will probably keep non-performing loans on their books until debt servicing resumes rather than write them off.

No way out, but consensus is growing that a way must be found

At an international bankers’ roundtable at the opening of the United Nations’ 78th General Assembly in September 2023 and at the African Development Bank’s 2023 Annual Meeting, Africa’s debt crisis topped the agenda. What was agreed upon was a consensus that the international lending system is insensitive to Africa’s circumstances and needs. For instance, debt relief has historically been a way for indebted African countries to lower their loan payments in order to finance their citizens’ developmental needs. However, the mechanism put in place for an African country to achieve debt relief is slow. Years have passed since Chad, Ghana, Ethiopia and Zambia applied for debt treatment under the G20’s Common Framework for debt, which has only seen Zambia accepted to be a benefit of the debt relief service.

Other ways to relieve African nations’ debt burden have not been forthcoming. Africa still pays more for its loans because of an ‘African premium’ incorporated by private creditors, who consider Africa a risky environment. However, a Moody’s study found that Africa’s debt fault rate of 5.5% is lower than Asia’s 8.5% and Latin America’s 13%. Until such unjustifiable practices end and loans to Africa come with reasonable 25-year repayment deadlines that are flexible enough to accommodate global crises like pandemics and recessions, the debt crisis will only worsen.

The critical points:

• African nations accumulated debt to develop their economies and societies, but debt repayment now leaves little money to do either
• Private creditors are now Africa’s largest lenders, and China is Africa’s biggest bilateral lender
• No solutions have been found to end Africa’s debt crisis, but consensus is growing that new debt policies are required

Written by In On Africa