Even though 23 African countries are dealing with unsustainable debt burdens, very few have stopped servicing their external obligations. To keep international creditors happy, and avoid the costs of default, many economies on the continent are severely underspending on education and health, to the detriment of future generations.
WASHINGTON, DC – In 2017, the International Monetary Fund categorized 15 Sub-Saharan African countries as being in debt distress or at high risk of it. Since then, economic shocks induced by the COVID-19 pandemic, dramatic spikes in food and fuel prices owing to the Ukraine war, and the rising dollar have exacerbated the crisis. But, even as 23 countries in the region now face unsustainable debt burdens, very few have defaulted. Only two states – Ghana and Zambia – stopped servicing their external debts, while three others have sought to restructure their obligations – Chad, Ethiopia, and Malawi.
Why has the predicted wave of defaults not materialized? Did the initial assessments exaggerate the risks? Have these countries and their creditors found some way to ease the pain of unsustainable debt? As cheerleaders of economic development in Africa, should we celebrate, or at the very least, relax a little?
On the contrary, there is ample reason to worry. Even after G20 countries provided temporary debt relief, and the IMF issued $650 billion of special drawing rights (SDRs, the Fund’s reserve asset) to unlock extra liquidity, African governments have had to slash their already meager spending on health, education, and public investment in order to pay their external creditors. To avoid debt default, African finance ministers are defaulting on their obligations to future generations.
WASHINGTON, DC – In 2017, the International Monetary Fund categorized 15 Sub-Saharan African countries as being in debt distress or at high risk of it. Since then, economic shocks induced by the COVID-19 pandemic, dramatic spikes in food and fuel prices owing to the Ukraine war, and the rising dollar have exacerbated the crisis. But, even as 23 countries in the region now face unsustainable debt burdens, very few have defaulted. Only two states – Ghana and Zambia – stopped servicing their external debts, while three others have sought to restructure their obligations – Chad, Ethiopia, and Malawi.
Why has the predicted wave of defaults not materialized? Did the initial assessments exaggerate the risks? Have these countries and their creditors found some way to ease the pain of unsustainable debt? As cheerleaders of economic development in Africa, should we celebrate, or at the very least, relax a little?
On the contrary, there is ample reason to worry. Even after G20 countries provided temporary debt relief, and the IMF issued $650 billion of special drawing rights (SDRs, the Fund’s reserve asset) to unlock extra liquidity, African governments have had to slash their already meager spending on health, education, and public investment in order to pay their external creditors. To avoid debt default, African finance ministers are defaulting on their obligations to future generations.