External debt of African countries rise to $636bn in 2021
African countries have been grappling with a debt crisis, which has been exacerbated by the COVID-19 pandemic, the war in Ukraine, and tightening of financing conditions. The World Bank Group’s World Debt Report estimates that Sub-Saharan Africa’s long-term external debt stock was at $636 billion at the end of 2021, with 19 out of 35 low-income countries either in or at high risk of debt distress. Furthermore, climate-related disasters have added to the already acute fiscal and debt problems on the continent.
In response to these challenges, African countries have been pursuing credible fiscal consolidation plans, anchored on efficient expenditure rationalization and robust domestic revenue mobilization measures. These measures will help build buffers for critical social interventions and infrastructural development while safeguarding medium-term debt sustainability. However, if unaddressed, the overall debt situation is expected to worsen in 2023 and further constrain the capacity for many member countries to raise the needed funding to deliver broader social protections and respond to climate change.
The International Monetary Fund (IMF) has been actively supporting African countries in addressing their debt challenges. The IMF has provided emergency financing to several African countries to help them meet urgent balance of payments needs and support their health systems and social safety nets in response to the COVID-19 pandemic. In addition, the IMF has been working with African countries to develop medium-term debt strategies that balance the need for continued investment in critical areas such as health, education, and infrastructure with the imperative of maintaining debt sustainability.
Despite the efforts of African countries and the IMF, the debt crisis in Africa remains a complex and multifaceted issue that requires a comprehensive and coordinated approach. African countries recognize the need to prioritize efficient debt management practices, consolidate debt data in a centralized system, publish reliable, comprehensive, and timely debt information, and deepen domestic debt and capital markets to foster greater access to long-term finance. The IMF has been advocating for greater debt transparency and improved debt management practices in African countries. This includes encouraging countries to participate in the IMF’s Debt Sustainability Framework, which provides a comprehensive framework for assessing debt sustainability and identifying risks. The IMF also provides technical assistance and capacity building to help countries strengthen their debt management systems and policies.
The debt crisis in Africa is not just a problem for the region, but also for the global economy. African countries are home to many of the world’s fastest-growing economies, and their growth potential could be curtailed by the debt crisis. The IMF has warned that the crisis could lead to a lost decade for the region if not addressed. Therefore, it is imperative that international financial institutions, creditors, and African countries themselves work together to find sustainable solutions to the debt crisis.
The debt crisis in Africa remains a significant challenge, but the IMF and African countries have been working together to address it. The IMF has been providing emergency financing, technical assistance, and capacity building to support African countries in their efforts to manage their debt and build resilience to future shocks. However, more needs to be done to ensure sustainable debt management practices and greater debt transparency. A comprehensive and coordinated approach involving all stakeholders is necessary to find sustainable solutions to the debt crisis and support the growth potential of African economies.
