Lagos/Abuja — A rising debt bill in Africa is wrestling away funds needed for infrastructure and dampens hopes of a speedy recovery from the economic fallout of the coronavirus pandemic.
As export and tax revenues decline due to subdued global demand and domestic activity, debt costs are eating up a larger share of countries’ income in a region that already spends less than any other on infrastructure. After 25 years of uninterrupted economic growth, GDP in sub-Saharan Africa could contract by 2.8% in 2020, according to the World Bank.
Nigeria, the continent’s largest economy, spent seven times more on debt than new bridges and highways in the first quarter. Ghana’s interest payments for the first four months of the year was the highest since at least 2016. All of that contributes to sub-Saharan Africa’s external debt-service bill, which is expected to be $36.6bn in 2020, according to the Institute of International Finance. And unlike richer countries that can afford to pour money into their economies, African governments need to take on even much more expensive debt to deal with the economic fallout from the pandemic.
“The cost of servicing the debt, and the debt overhang, will make a recovery difficult,” said Gyude Moore, Liberia’s former minister of public works and senior fellow at the Centre for Global Development.
The debt-relief initiative by the Group of 20 leading economies, aimed at freeing up funds for poor nations to deal with the pandemic, is moving slowly. Since launching in April, 12 of the 73 eligible countries have been granted a suspension and multilateral lenders and private creditors have been hesitant to participate.
Without help, many countries spending more to tackle the pandemic epidemiologists say has not yet peaked in Africa could be forced into default. That could deter fresh investment and financing, jeopardising the World Bank’s projection for a rebound to 3.1% growth in 2021.
Economies with diversified industries and sources of capital will bounce back quicker than those reliant on one sector, said Indigo Ellis, head of Africa research at Verisk Maplecroft.
If oil prices remain low, debt costs in Nigeria, the continent’s top crude producer, could consume 96% of government income in 2020, according to a report by Maplecroft. Interest payments for Angola, the number two producer, could eat up all revenue in 2020, the IMF said in June 2019.
“Perhaps this crisis is going to be a wake-up call for policymakers across the continent to make steep changes in their efforts to transform economies,” said Dirk Willem te Velde, a research fellow with the Overseas Development Institute.
Social expenditure also loses out to rising debt costs. Government spending on public services in sub-Saharan Africa dropped by 15% between 2014 and 2018, according to the European Network on Debt and Development. In SA, debt-service costs will grow faster than any other spending category over the next three years and in Kenya and Ghana governments will spend more on debt than on infrastructure, health or education.
African governments have “shrinking fiscal space as revenues are falling”, said Adedeji Adeniran, a senior research fellow at the Abuja-based Centre for the Study of the Economies of Africa. “For countries with very high external debt which is maturing this year, the debt crisis will be immediate.”
“For most countries, rising debt-service costs will continue to make up a disproportionate share of their budgets, squeezing room for social development spending. Most countries already spend more on servicing their debt than on critical areas, such as health and infrastructure,” says Bloomberg economist Boingotlo Gasealahwe.
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