How did African countries become debt distressed?

Nov 02, 2022|Gbemisola Alonge

Most African policymakers have struggled to keep their debt sustainable and their fiscal heads above water in 2022. Few cannot repay their loans and have sought debt restructuring and fiscal support from the International Monetary Fund, and many are at the verge of debt distress.

Key takeaways:

This year, many African countries have either defaulted on their loans or are on the verge of defaulting, leading to several countries' call for debt restructuring or forgiveness.
While the debt distress situation in most countries can be linked to the pandemic and other situations beyond these countries’ control, the situation is also largely due to the fiscal decisions of many of these countries.
For most countries, like Nigeria and Ghana, their decision to spend and borrow beyond their means is largely tied to their debt overhang today. While others, like Ethiopia, although borrowed too, have been plagued by devastating conditions that have made them worse off.

Going by the World Bank and International Monetary Fund (IMF) 's joint debt sustainability index, 19 out of the 35 low-income African countries are either in debt distress or have a high risk of debt distress. Lower middle-income countries in the region, such as Ghana and Nigeria, also have moderate debt distress risks. Essentially, African countries are struggling to sustain their debt.

One of such countries, Zambia, defaulted on its Eurobond loan in 2020. The Ghanaian government has had to reassure its commercial creditors that they won't get a haircut to assuage the fears around the government’s ability to continue repaying its debt.

Therefore, one conversation in many development circles, particularly during the just concluded IMF and World Bank Spring meetings, is the request for debt forgiveness—especially for African countries in debt distress. Debt relief for heavily indebted poor countries (HIPC) might