African debt levels have been on the rise for the past few years and the Covid-19 pandemic slowed down the growth that is needed to keep the biggest borrowers solvent.
Zambia (government debt of 120% of GDP in 2020) was the first country to hit a crisis, defaulting on its eurobond in October. Analysts are also sounding the alarm about Angola (120.3%) and the Republic of Congo (104.5%).
The IMF typically recommends that African countries maintain their debts at below 60% of GDP. The World Bank predicts that average sub-Saharan African debt will hit a peak of 67.4% of GDP in 2021. Growth rates are expected to pick up next year and the Covid-19 crisis has led many countries to re-evaluate their development plans.
Most creditors agreed to temporary delays in repayments, but global NGOs like Oxfam say it is not enough and are calling for a round of debt forgiveness.
Such calls – of which Uganda’s President Yoweri Museveni is a vocal backer – are not yet gaining traction, and many African governments did not participate in the debt moratorium out of fears about credit ratings and investor sentiment. China is a major lender and, while it has forgiven small loans in the past, it was not a part of previous debt-forgiveness campaigns.
Many African governments are now looking to raise money on the eurobond market because global investors will be looking for higher interest rates than they can get in Europe and the US. But bond buyers are likely to be more wary, raising borrowing costs for bond issuers – at least in the case of the riskiest countries, which are rolling over bonds to repay previous bonds.
