Don’t think that this is the bottom of Africa’s debt challenge. The rapidly deteriorating financial crisis in Lebanon provides a grim preview to other developing countries of what happens when the bottom falls out of an economy.
After the government defaulted on its debt last spring, conditions spiraled downwards to the point where month after month of triple-digit inflation is devouring what’s left of peoples’ savings.
Although the situation to date in Africa is not as dire, the International Monetary Fund’s Managing Director Kristalina Georgieva wants you to know that unless something is done, and soon, countries across the continent could well face the same challenges as Lebanon.
She reiterated the World Bank’s projection that at least 43 million people in Africa are now at risk of severe poverty as a result of the current economic crisis brought on by the COVID-19 outbreak. Furthermore, she said that between now and 2023, Africa faces $1.2 trillion in “financing needs.”
When you consider that appeals by African leaders for a meager $100 billion of emergency financing largely went ignored by the international community, the idea that those same wealthy countries are going to somehow now come up with ten times that amount is, just, well, ludicrous.
It should be pretty clear by now that no one’s coming to Africa’s rescue.
There doesn’t seem to be any political will among the world’s wealthy economies to spend hundreds of billions of dollars to help Africa or other highly indebted regions.
Neither Donald Trump nor Boris Johnson, nor even Japan’s new Prime Minister Yoshihide Suga, is going to lead that charge when their own countries are borrowing trillions in what’s become the economic equivalent of a ventilator.
And what about Xi Jinping? Well, let’s just say that Zambia owes its Chinese creditors $426 million between now and the end of the year. Until there’s an agreement to restructure that debt, the Chinese are going to get their money.
The same dynamic is playing out across the continent, with the Chinese spending a lot of time talking about how eager they are to support African governments through this difficult time, while continuing to cash those debt servicing checks.
Meantime, finance ministries across the continent are preparing next year’s budgets and have admitted that they have no other choice but to go back to the capital markets to borrow more money just to cover basic operating costs.
Nigeria, Ghana, Kenya, South Africa, and others have all announced new borrowing initiatives that will only exacerbate the current financial crisis.
And what’s worse is that they’re largely planning on using the proceeds from raw material sales to repay those loans. But by the time those loans come due, Europe’s post-carbon economy isn’t going to need anywhere near as much Nigerian oil, and Tesla’s roll-out in China of a cobalt-free Model 3 all hint at a world where commodities won’t be as valuable as they are today.
The debt hole just keeps getting deeper and deeper and, at some point, it will become too big to fill.
What happens then? Well, let’s just wait and see what transpires in Lebanon.