Is debt restructuring the magic wand for Africa’s problems?

Monday October 23 2023

Activists hold placards during a demonstration against poverty and climate change on the first day of the annual meetings of the International Monetary Fund and the World Bank Group in Marrakesh, Morocco on October 9, 2023. PHOTO | AFP


The annual meetings of the International Monetary Fund and the World Bank might have returned to Africa after 50 years with good news of projected economic rebound for the continent, but critics say they did little to address the continent’s main problem today – debt.

IMF has indeed predicted that African economies will bounce back to pre-pandemic growth rates next year. But from Marrakesh, only Zambia has come back with debt respite after entering a deal with creditors, including China and France, to restructure its loans, allowing it headroom to deal with its internal challenges.

Zambia, which in 2020 became the first African country to default on its loans after the pandemic, had accumulated a debt of $32.8 million as of December 2022 and is currently among the 10 countries on the continent that are in debt distress.

Read: Zambia signs debt deal with creditors, IMF chief says

Other countries unable to service their loans – including Ghana, Somalia, Sudan, Equatorial Guinea, Malawi, Mozambique, Zimbabwe and the Republic of Congo – are yet to reach any deal with their creditors.

Beside these, 10 other African countries, including Kenya and Rwanda, are at high risk of defaulting on their debts as loan servicing costs soar, says IMF.


Even for countries not in distress, the cost of servicing loans has nearly doubled since the pandemic. IMF figures show that yields on African Eurobonds are currently over 12 percent, compared to seven percent before the pandemic, worsening the funding squeeze facing the continent.

In a recent report, IMF warned that the continent’s average debt-to-GDP ratio hit 60.8 percent this year and could rise by a further 10 percent in the next five years if countries don’t implement crucial reforms to cut fiscal deficits.

Many Pan-African experts and activists, however, have faulted IMF’s austerity advice to Africa, blaming it for the debt crisis.

“World Bank and IMF have been operating in Africa for decades with a lot of influence and power in implementing economic development strategies across the continent,” said economist Fadhel Kaboub in an interview with The EastAfrican.

Read: ActionAid to Bretton Woods twins: It’s 50 years of failure

“So, when we talk about Africa being in a debt trap today, it’s one of two things. It’s either recognising that the IMF and World Bank have failed miserably in their development mission with the continent or they’re actually very skilled at using their influence to entrap the continent in this trap of external debt.”

IMF criticism

Johannesburg-based international charity ActionAid, in a report criticising IMF’s work in Africa, said the austerity measures prescribed by the lender are in fact hurting State spending on crucial sectors like healthcare and education. It called for a change that prioritises development over debt repayments, shifting away from austerity and fiscal fundamentalism, and advancing progressive alternatives.

IMF, however, blames Africa’s growing debt unsustainability on the continent’s shift to commercial and non-concessional debts.

“The shares of domestic debt and commercial debt in the total for sub- Saharan African countries have increased since the early 2000s, while the share of bilateral and multilateral debt has shrunk from 50.0 percent in 2000 to 21.6 percent in 2021,” the lender said in a report.

This shift, IMF says, has further complicated debt restructuring negotiations, slimming chances of possible successful debt reworks, as more and diverse creditors are involved.

Read: Africa’s creditors come calling as debt distress looms large

Nonetheless, observers contend that entering restructuring agreements will be crucial in helping nations out of their current crisis.

“Being able to restructure debt is a key win for any administration, especially in cases where it does not attract economic and political penalties,” said Eric Musau, executive director in charge of research at Nairobi-based Standard Investment Bank.

But Zambia’s Finance Minister Situmbeko Musokotwane, while addressing journalists in Marrakesh last weekend, said the restructuring “does help, but it is not adequate by itself to uplift the living standards of the people of Zambia.”

Dr Kaboub agrees that “postponing the payment doesn’t change the structures that created the debt trap, and that is really what is lacking for African leadership to put forward.”

African finance ministers proposed a series of reforms to the Bretton-Woods institutions that could improve the continent’s liquidity needs and access to cheaper, longer-term loans. The World Bank, after approving a new vision statement, seems committed to effecting these reforms.

“We’re exploring maturity of 35-40 years, to help navigate longer-time horizons for social and human capital investments,” said World Bank President Ajay Banga while addressing the plenary session in Marrakesh.