World Bank warns of amplified debt-distress risks in Sub-Saharan African economies
In its October 2023 Africa Pulse report, the World Bank has sounded a warning about the severe debt burden plaguing Sub-Saharan African economies. The report underscores that debt distress risks in the region have remained alarmingly high, exacerbated by the impacts of the COVID-19 pandemic.
One of the key findings of the report is the increasing proportion of International Development Association–eligible countries in Sub-Saharan Africa that are either at high risk of debt distress or already in debt distress. This figure has surged from 27 percent in 2015 to a concerning 55 percent by the end of June 2023.
The surge in debt within the region has also been accompanied by a shift in its composition. Borrowing patterns have moved away from concessional loans towards engagement with private creditors and non-Paris Club bilateral creditors. This shift has not only escalated the overall debt burden but has also heightened vulnerability to economic shocks.
A particularly alarming trend highlighted in the report is the rising debt service burden. In 2022, debt service ratios in the region reached an alarming 31 percent of total revenues. This significant allocation of resources towards servicing debt is undermining the capacity to fund crucial public investments and social programs. Furthermore, with exports stagnating, the availability of foreign exchange for essential imports required for production and investment is also under threat.
The World Bank’s report serves as a stark reminder of the urgent need for Sub-Saharan African nations to address their mounting debt challenges and pursue measures to restore fiscal stability, safeguard social spending, and promote sustainable economic growth.
