Africa’s top lender sees Continent’s debt woes easing
Plans to tackle Africa’s debt crisis are yielding progress and could offer governments needed fiscal room and aid economic growth, the continent’s biggest multilateral lender said.
Over the past three and half years, the continent has seen an increase in debt vulnerabilities due to rising public spending because of shocks such as the coronavirus pandemic, the war in Ukraine and higher global interest rates. Those stresses led to countries such as Zambia, Ghana and Ethiopia accumulating unsustainable debt, rendering them in need of restructuring.
“There is a glimmer of hope as governments and private creditors take the first steps toward finalizing debt restructuring,” the African Development Bank said in its 2024 outlook for the continent.
Zambia, which became the Africa’s first pandemic-era sovereign defaulter in 2020, is hopeful of finalizing a debt revamp with bilateral and commercial creditors under the Group-of-20 Common Framework for Debt Treatment this year after repeated setbacks.
“This progress offers some optimism for Ethiopia and Ghana, two other applicants for the Group of 20 debt moratorium,” the AfDB said. “If successful and extended to all countries in debt distress or at high risk of debt distress, debt-relief initiatives could provide the fiscal headroom to spur growth, reinforcing domestic fiscal consolidation efforts after a series of economic shocks.
Ghana, which defaulted on its debt last year, has an in-principle deal with bilateral creditors to restructure its obligations and expects to secure an agreement with eurobond holders by the end of March.
Market indicators show that fears of other African nations following Zambia, Ghana and Ethiopia into default have evaporated. Appetite for new debt issued by Ivory Coast, Benin and Kenya is another signal of the shift in sentiment.
The AfDB now sees Africa’s debt-to-gross-domestic-product ratio retreating to around 60% this year, effectively halting an upward trend that’s lasted nearly a decade. The ratio averaged around 63.5% in 2021–23, it said.
The lender also sees better prospects for fiscal deficits on the continent, owing to the various consolidation measures, particularly in countries with elevated risks of debt distress.
Debt restructuring measures in Zambia have led to fiscal deficits narrowing to 6.4% in 2023, from 8.2% the prior year, and 3.3% in Ethiopia from 4.2%. Ghana’s budget gap tapered down to 4.8% from 11.2%.
The AfDB left its 2024 growth estimate for Africa at 3.8%, unchanged from November, and expects it to accelerate to 4.2% next year.
