East African countries are facing an immediate risk of defaulting on their loans in the coming months due to a combination of rising debt servicing costs, more borrowing, rising costs of imports and higher inflationary pressures associated with the continued appreciation of the dollar.
And this may undermine prospects of a full economic recovery from the pandemic as economic growth slows due to worldwide slowdown, tighter global financial conditions, and volatile commodity prices that spill into the region still struggling from the fall out of the pandemic according to forecasts by the International Monetary Fund.
“Too many low-income countries are in or near debt distress. Progress toward orderly debt restructurings through the G20 common framework for the most affected is urgently needed to avert a wave of sovereign debt crisis. Time may soon run out,” said Pierre Olivier Gourinchas, IMF’s Chief Economist, while releasing the Global Economic Outlook Report.
The IMF warned of a growing risk that the global economy will slide into a recession next year as growth is projected to slow down to 2.7 percent, down from 3.2 percent in 2022, the lowest projection since 2001.
In sub-Saharan Africa, growth is expected to slow sharply this year to 3.6 percent and is expected to remain subdued at 3.7 percent in 2023.
Now, the challenge facing the region’s economic managers is how to navigate a gloomy global economy and minimise shocks on their economies.
Debt levels across the region rose sharply over the past decade and exacerbated during the Covid-19 pandemic as countries borrowed heavily to contain it.
Rwanda whose debt stock has risen sharply to 78.3 percent of GDP in 2021 up from a pre-pandemic figure of 60.7 percent of GDP in 2019 is now expected to spend at least 14.5 percent of its export earnings to pay debt, up from approximately 12.6 percent in 2019.
But it is expected to spend even more in 2023 — rising to 30 percent of GDP when the country is expected to make its repayment of its $400 million Eurobond issued in 2013.
“We don’t have any issues that puts Rwanda in a weak position in relation to serving its external debt because more than 80 percent of our debt is concessional making it easy to handle going forward…” said John Rwangombwa, Governor, National Bank of Rwanda.
Kenya’s total public debt by July this year stood at Ksh8.61 trillion ($71.75 billion), accounting for 68.1 per cent of the gross domestic product (GDP), according to data from the National Treasury.
As of July, Kenya’s proportion of debt owed to multilaterals stood at 46 percent, followed by bilateral (25 percent), International Sovereign Bond (20 percent), commercial banks (6 percent), and Guaranteed debt (3 percent).
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- Additional report by James Anyanzwa