Africa’s creditors come calling as debt distress looms large

Saturday September 16 2023
debt burden

In Africa, countries considered to be in debt distress and at high risk of such distress are Zambia, Congo, Mozambique and Zimbabwe, Burundi, Cameroon, Chad, Gambia, Guinea, Ghana, Kenya, South Sudan, and Togo. PHOTO | SHUTTERSTOCK


African countries are increasingly under pressure to review and renegotiate their foreign debts to avoid default from the Bretton-Woods institutions and commercial lenders before the end of 2023.

The move comes at a time when at least 23 low-income countries in Africa, including Kenya, are facing a debt crisis as they are expected to pay $68.9 billion in external debt service in 2023.

Kenya, Tanzania and Uganda hold over $51 billion in foreign debt denominated in the dollar with their currencies depreciating at an alarming rate against the dollar, the debt is ever rising.

Read: EA nations race to review $51b loans terms

Gross government debt in Africa rose from about $192 billion in 2000, to over $1.5 trillion in 2020.

This is way above the revenue earning potential for the region which stood at $43.2 billion and $457 billion during the same period, a clear indication that African countries have been borrowing above their earning potential.


“Nine countries in Africa are already in debt distress, 13 are at high risk and 17 are at medium risk, and African continent is bearing the brunt of the global climate crisis because an unjust financial architecture views African nations as risky borrowers,” said President William Ruto.

He urged debtors to hold discussions that would see the debts staggered over time to avoid them getting further in the deep hole that is indebtedness.

In Africa, countries considered to be in debt distress and at high risk of such distress are Zambia, Congo, Mozambique and Zimbabwe, Burundi, Cameroon, Chad, Gambia, Guinea, Ghana, Kenya, South Sudan, and Togo.

Read: 5 African countries facing risk of debt crisis

The World Bank estimates Kenya’s external debt stock at $4 billion larger than calculated by CBK, although IMF figures align with Kenya’s official tally.

Kenya, which enjoys strong, ongoing support from the IMF and World Bank but will face a potential crunch point in June 2024 when a ten-year Eurobond, worth $2b, will need repaying, unless a yield retreat allows for refinancing.

Four countries under moderate to low risk of debt distress are Burkina Faso, Nigeria, Mali, Malawi and Senegal.

African leaders meeting recently during the Climate change summit in Nairobi called for urgent action by developed countries to reduce carbon emissions, proposed a new financing mechanism to restructure Africa’s crippling debt and unlock climate funding.

“We call for a comprehensive and systemic response to the incipient debt crisis outside default frameworks to create fiscal space that all developing countries need to finance development and climate action,” said Ruto when he read the Nairobi Declaration on Climate Change and Call to Action, adopted at conclusion of the Africa Climate Summit.

Read: Ruto urges global lenders to be fair to Africa

Decarbonise global economy

In a call to action, African leaders stressed the importance of decarbonising the global economy for equality and shared prosperity.

They called for investment to promote the sustainable use of Africa’s natural assets for the continent’s transition to low carbon development and contribution to global de-carbonization.

Among the strategies proposed by economic experts and civil society to manage the debt crisis was that African countries get representation in the G20 common framework.

During the recently held Debt and Development conference held in Dakar in early September, AFRODAD reiterated calls for Africa to have representation in the G20 common framework for debt treatment to ensure countries on the continent are not left exposed. It is the only multilateral mechanism for forgiving and restructuring sovereign debt.

“Having a voice and being present when the debt deals are being discussed will save African countries from finding themselves in deals that have stiff conditions, leaving them vulnerable,” said AFRODAD Director Jason Braganza.

However, having a seat at the G20 common framework means that the continent had to give up on some clubs such as the Borrower’s Club.

Read: Group of 20 expands as African Union joins bloc

Zambia, which was the first African country to default on its debt during the coronavirus pandemic, said it reached a long-awaited deal to restructure $6.3 billion of its debt, including its loans from China, its largest private creditor through the G20 common framework.

The Ministry of Finance says Zambia owes China more than $6 billion, while other bondholders are owed $3.5 billion.

Government data indicates Zambia’s total external debt as of the end of 2022 is estimated at $18.6 billion.

Illicit cash flows

However, Zambia was one of the first countries to apply to restructure its sovereign external debt under the Common Framework for Debt Treatment in 2021.

The Common Framework was launched by the G20 Summit in November 2020, to provide a mechanism for low-income countries to seek debt restructuring when unavoidable.

Having successfully restructured its debt means Zambia will be able to receive another $188 million tranche of money from the IMF.

Read: Zambia creditors agree to restructure debt

The Common Framework is only open to 73 low-income countries.

Among the proposals to manage debt especially for countries in low-risk debt include the utilisation of debt on projects that were intended for.

“The growth sectors we are concerned with include agriculture, livestock, aquaculture infrastructure, agroindustry and housing. This is where we are utilising borrowed funds to invest and grow the sectors because they can generate a more improved economy,” said Dr Youssoupha Diagne of the Ministry of Economic Planning and Cooperation of Senegal told The EastAfrican.

Among the strategies proposed by a team of economic experts and civil society include a new sovereign debt restructuring mechanism that would be binding on all creditors, including commercial creditors, who currently make the largest lenders.

“Africa’s debt burden is directly becoming a burden on Africans who are having to pay the price of both irresponsible borrowing and equally irresponsible lending,” said Barbara Khalima-Phiri, board chair African Forum and Network on Debt and Development (AFRODAD).

Civil society is also suggesting that the restructuring should be carried out in a manner that would make it difficult for hold-out creditors to prevent sovereign debt workouts and illicit cash flows.

“Financing of African development needs to come primarily from Africa, not external debt. Today $90 billion leaves Africa as illicit financial flow, stopping this can help Africa to stop the bleeding and its dependence on unsustainable aid,” said Ebrima Sall, Trust Africa Executive Director, adding that lasting solutions must be African.