While the debt explosion raises the specter of a paralysis of the global economy, several experts point to the alarming situation in sub-Saharan Africa, which is experiencing “the worst crisis in its history” and where several countries have already defaulted on their payments.
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Rising interest rates and excessive debt are preventing many countries from financing their development, African leaders stressed this week at the World Economic Forum in Davos.
Where does the current crisis come from?
After the global economic crisis of 2009, central banks in developed countries gradually lowered their interest rates, while international financial markets opened up to countries in the South that until then had mainly borrowed from public creditors.
“Many developing countries, desperate to inject liquidity into their economies, rushed to these cheap loans in markets without rules or regulation,” notes Kenyan economist Attiya Waris, an independent expert at the United Nations. The International Monetary Fund (IMF) has “largely supported it,” she notes.
After the euphoria of the beginning, the fragile African economies, which were dependent on the export of raw materials (hydrocarbons, wood, ores, etc.), suffered the full force of the decline in world market prices from 2015 onwards. Their income fell. A situation largely exacerbated by the Covid pandemic and the consequences of the war in Ukraine.
With several countries strapped for cash and unable to repay their creditors, they took out new loans to service existing debts. This created a vicious spiral that prevented vital investments in infrastructure, health and even education.
Today, 22 countries are at high risk of a debt crisis or have already reached it, the World Bank calculated in April 2023. These include Ghana and Zambia, which have become insolvent, as well as Malawi and Chad, which have fallen into distress with the help of the IMF. Ethiopia, which was classified as “partially insolvent” by the rating agency Fitch in December, is also negotiating an aid plan.
Blocking private creditors
In 2022, public debt in Africa reached $1.8 trillion, a 183% increase since 2010, a rate about four times higher than GDP growth, according to the UN.
Under the auspices of the G20, Western public creditors and several partners including China – which is sometimes accused of “trapping” governments by building costly infrastructure projects in exchange for debt – are trying to find compromises to restructure the debts of 40 African nations.
But the problem often lies at the level of the private sector – pension and investment funds – which in a few years has become the largest creditor of Africa's public external debt: 42% in 2022, compared to 38% for multilateral institutions (IMF, world). Bank …) and 20% for bilateral partners, mainly China (11%).
“China is often portrayed as the big bad, but it has understood the importance of giving relief to states in great difficulty and is now joining the effort, even if it has taken time,” emphasizes Mathieu Paris, coordinator of the French Debt and Development Platform.
The case of Zambia is instructive. After two years of difficult negotiations, Lusaka reached what was described as a “historic” agreement with its public creditors in June 2023 to restructure $6.3 billion of debt – out of the $18.6 billion contracted abroad.
However, this agreement cannot apply if private creditors do not make appropriate efforts. And the American asset manager BlackRock, one of the majority creditors of Zambian debt, is blocking it. “Everything is at a standstill,” laments Attiya Waris.
Inflation and poverty
By piling up debt at ever-higher interest rates, “African countries are seeing their currencies fluctuate dangerously and inflation running rampant,” explains Ghanaian economist Charles Abugre. “The daily effects are dramatic for the poorest: the costs of transport, food and housing are exploding, while wages are stagnating,” he complains.
Faced with ratings that are sometimes viewed as arbitrary by major international agencies, the African Union (AU) plans to set up a pan-African financial ratings agency and advocates for better representation of southern countries in institutions such as the World Bank.
For Amine Idriss Adoum, director of infrastructure at the AU Development Agency, “the real question today is not how to get out of debt, but rather how to get into debt intelligently.”
“Yes, debt restructuring is important, but this relief must not come at the expense of investments in infrastructure, health or energy and for this we must, above all, diversify our economies,” he said.