By Muluken Yewondwossen
Over the next five years, debt service will overtake financial spending on essential social sectors in Africa.
Africa is currently facing a financial crisis as a result of the continent’s foreign debt growing by nearly four times during the previous 20 years.
The African Forum and Network on Debt and Development’s (AFRODAD) policy analyst and advocacy officer for sovereign debt management, Shem Joshua, stated that if there is no way out, the continent’s debt service payments will only increase over the next five years.
According to the UNCTAD analysis, he said, there would be more money spent on debt servicing between 2025 and 2030 than on funding initiatives to improve health, education, and other social sectors.
At last week’s AFRODAD Media Initiative, he stated, “It has an impact when it compares with some of the development agenda that African economic considers as the expenditure for debt repayment increases and education expenditure reduces.”
The question of whether countries are collecting money to pay off debt or to expand their economies is raised by the growing amount of debt to GDP.
He displayed the debt position of a few African nations, saying that between 2019 and 2023, the average debt to GDP ratios for Egypt, Sudan, Tunisia, and Morocco were 86, 198, 83, and 70%, respectively, and above 100% for the Democratic Republic of the Congo, Zambia, and Mozambique.
Joshua claims that of Africa’s USD 238 billion (dollars) in debt at the beginning of the 2000s, less than one-fifth was owing to private creditors.
Africa has a total debt of USD 1.13 trillion (trillion dollars) as of 2024, a 375 percent rise from 2000 to 2024. Private creditors account for the majority of Africa’s debt. He went on to say, “Private creditors have become important financing sources for African countries in recent years as governments are able to circumvent loan conditions associated with debt owed to bilateral and multilateral creditors.”
The low interest rates that were prevalent at the time, which encouraged African countries to borrow, are reflected in the rapid increase in debt held by African governments between 2012 and 2019.
Subsequently, governments have to drastically reduce their spending, frequently despite declining tax collections.
Between 2000 and 2023, there was a significant increase in the continent’s gross government debt relative to general government revenue.
This disparity has made it difficult for governments to determine how best to use revenue to pay down debt while also allowing for economic development.
He highlighted the financial bottleneck the continent faces by saying, “If eight or nine dollars of every ten dollars we collect in revenue go toward debt repayment, then can we develop our economy by the remaining one or two dollars?”
“Public borrowing is vital for bridging the financing gap in African economies, given that on average, domestic revenue is about 18 percent of GDP in Africa. However, for low-income countries, the average is about 12 percent of GDP.
The average domestic tax collection rate in African nations is between 10 and 15 percent, while 60–75 percent of the continent’s economy now operates in the informal sector.
“We do not support raising taxes on citizens since very few people pay taxes, regardless of where we are in Africa. Since the majority of our economies are in the informal sector, we are looking to increase the tax base,” he continued.
“What are some tools that the government is putting in place to make sure that we can service our development agenda without depending on developed economies?” he asks, emphasizing potential solutions to be considered when the development initiatives are completed.
“There’s a problem when we cut back on health or education spending while raising the debt service,” he continued.
He brought up a UNCTAD analysis that predicted that between 2025 and 2030, more than half of Africa’s economy will be used to provide for debt service compared to GDP, surpassing fundamental needs in the areas of health, education, and other social sectors.
The expert asserted, “Africa is in a debt crisis, and the worst scenario is that the developed economies will have to bring the solution to the continent.”
He expressed disapproval of the fact that the majority of debt restructuring plans include conditions that might negatively impact a nation’s economic stability.
Low-income nations were able to temporarily suspend part of their debt payments under the COVID-19 Debt Service Suspension Initiative (DSSI), but not all creditors were required to comply.
As a result, the G20 Common Framework was established to restructure the debt of these countries.
Only two nations and four countries, Ethiopia, Zambia, Ghana, and Chad, were involved in the debt restructuring. Although Zambia and Chad were able to come to an agreement, it took more than two years to see any tangible results due to the conditions, some of which would require austerity measures from the creditors.
