The G20 must work harder to bring about debt relief in Africa — otherwise, African economies will be mired in debt distress and millions of people will continue to suffer from anaemic growth. 

The African continent has got itself into a severe economic mess again. It has been exacerbated by the pandemic and by the Ukraine crisis, but many leaders in the region are to blame for having got their countries so indebted again. 

The World Bank is forecasting that the region will expand by only 2.5% this year, way below the 6-7% growth that low-income countries need to end poverty reduction on a large scale. The median public debt-to-GDP ratio in sub-Saharan Africa jumped from 29% in 2012 to 52% in 2019, reached 59% during the 2020–2021 period, before decreasing slightly to 57% in 2022, according to the World Bank. The last time it was at such a high level was in 2005 when it reached 58%. 

In low-income countries in the region, the debt problem is even more serious — the public debt-to-GDP ratio ballooned from 55% in 2015 to 77% in 2022.

The issue for many African countries is the high level of public debt built up again since they enjoyed $100bn of debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and the related Multilateral Debt Relief Initiative (MDRI) some 25 years ago. Persistent fiscal deficits throughout the region and slackening growth have contributed to bringing the ratio back up to an unsustainable level. A lot of money has been spent on projects of debatable economic value and corruption remains rampant. 

In 2022, public debt in Africa totalled $1.8 trillion, a jump of 183% since 2010 — a rate roughly four times higher than its economic growth rate in dollar terms, according to the UN. Almost 40% of this debt is held by countries in Northern Africa, many of which have been confronted with higher food prices and lower availability of goods owing to the Ukraine conflict. 

Some 21 African countries have issued Eurobonds — foreign currency-denominated Eurobond bonds totalled $143bn in March 2023, according to M&G Investments, a fund manager. 

Total debt service in the sub-Saharan Africa region surged from $59bn in 2012 to $116bn in 2021 before dropping to $109bn in 2022, still a massive burden for many poor African countries to bear. The share of International Development Association–eligible countries in the region at high risk or already in debt distress has expanded from 27% in 2015 to 55% at the end of June 2023. 

The ratios of total debt service to exports and debt service to revenue in sub-Saharan Africa were 21% and 31%, respectively, in 2022. These figures are staggering and mean that in many African countries, almost one-third of government revenue is going to servicing the debt. After paying public servants’ salaries, there is not much left for healthcare, education or roads. With stagnant exports, the debt servicing costs also reduce the availability of foreign exchange for essential imports needed for production and investment. In a number of countries, severe fuel shortages are becoming a major issue. 

Furthermore, Africa’s external debt as a share of exports has rocketed from 74.5% in 2010 to 140% in 2022. This is alarming since many countries are reliant on exports, in particular exports from the extractive industries with little value-added. The imbalance between debt and exports has made it tougher for African states to service their external debt, as their ability to obtain foreign currency has grown at a rate lower than its debt-servicing costs.

The poverty headcount ratio — measured as the percentage of the population living on less than $2.15 a day — reached a pandemic peak of 37.6% in 2020. It is expected to drop to 36.1% by 2025 but means that up to 472mn Africans will be living on less than $2.15 a day in 2025. 

Such immense poverty creates enormous challenges for the West. Africa has experienced seven military coups during the last few years. Most of these have been in the Sahel region, but the latest one was in Gabon in central Africa. Many more desperate Africans are trying to make their way to Europe. For example, irregular arrivals of migrants in Italy via the Mediterranean from North Africa amounted to almost 114,300 between January and August this year, almost twice as many as in the same period in 2022. 

Social and political unrest in Africa is one of the main reasons why Western governments must help African economies to bring down their debt levels. 

The debt surge in the region has come along with a shift in its composition — away from concessional borrowing toward private creditors and non-Paris Club bilateral creditors. In 2021, 44% of African debt was held by private creditors, up from only 30% in 2010. Furthermore, in many cases, China is the biggest bilateral donor — with an average share of around 12% of African countries’ private and public external debt.

Countries in North Africa in a precarious position include Egypt and Tunisia, where debt-to-GDP ratios are around 87% and 92%, respectively. Egypt’s ratio is expected to reach 97% during the 2022-23 fiscal year. For example, Egypt — which holds $421bn in public debt — received over 75% of its wheat imports from Russia and Ukraine in 2021. Its total external debt adds up to $165bn, including $11.8bn that is scheduled to be repaid to the IMF over the next two years alone. 

In December 2022, the IMF approved a $3bn Extended Fund Facility loan for Egypt. Disbursements under the 46-month programme are subject to eight reviews, the first of which, originally scheduled to take place in March, has yet to happen, amid reports the IMF was unhappy with the country's progress in fulfilling the terms of the agreement. The first and second reviews are now expected to take place together at the end of 2023.

Egypt agreed with the IMF to adopt a flexible exchange rate but the official rate has remained almost unchanged for almost six months at about 30.90 to the dollar. The pound is trading at around 41 to the dollar on the black market.

It has been difficult for the government to fully implement the IMF’s programme, partly because presidential elections take place in the country between December 10 and 12 this year. 

The country’s debt interest payments alone are expected to absorb over 50% of government revenues in 2024, according to Fitch Ratings. Egypt needs to repay a staggering $100bn of hard-currency debt over the next five years. The country’s financing needs for fiscal 2023/204 stand at $24bn.

However, it is Tunisia that is facing the highest borrowing costs in Africa — with a sky-high bond yield of at least 27.9%. In October 2022, the IMF agreed to supply the country with a $1.9bn loan to be disbursed in tranches over 48 months. Yet, in March, Tunisia’s president, Kais Saied, publicly rejected the wide-ranging economic reforms required by the IMF. These included cutting fuel subsidies, eliminating consumer goods subsidies, reducing public wage bills and restructuring state-owned entities.

Tunisia’s total external debt amounted to $41.6bn in 2021. The sovereign has $2.6bn of debt repayments scheduled for 2024 (including a Euro-denominated bond maturing in February, equivalent to $900m). It is still unclear how the government will meet these repayments and it is at serious risk of defaulting on its foreign debt. Presidential elections are scheduled to be held in the country during 2024. 

Other African countries with large levels of debt include Sudan, Zambia, Zimbabwe and Mozambique. This year alone, Standard & Poor’s, Moody’s and Fitch Ratings downgraded the credit ratings of Ghana, Nigeria, Kenya, Egypt and Morocco. 

The cost of international borrowing is prohibitively high for most sub-Saharan African countries. All frontier markets in the region have been cut off from market access since Spring 2022, with no Eurobond issuance. Most countries have been able to borrow in local capital markets but at a higher cost.  

The average yield on outstanding Eurobonds for sub-Saharan Africa (less Zambia and Ethiopia) has declined from almost 14% in March 2023 to 12% in August 2023. However, it is significantly higher than the pre-Covid yield of 7% witnessed between January 2019 and January 2020.

Four countries in the region — Chad, Ethiopia, Zambia and Ghana — have sought debt restructuring under the Common Framework, launched in November 2020 and coordinated by the G20 grouping of countries. It aims to help countries restructure their debt and deal with insolvency and protracted liquidity problems.

In May, the IMF approved a $3bn loan to Ghana after the west African country’s creditors, including China, agreed to a debt-restructuring deal. Zambia also secured an IMF bailout last year following assurances from official creditors, led by China, that they would provide relief on their loans to the southern African economy, after it defaulted in 2020. China failed to agree on specific restructuring terms with other creditors, holding up a second IMF payment. However, it is understood that that the Zambian government finally signed a Memorandum of Understanding with its creditors on October 12. 

Fiscal deficits in 2023 are still above pre-pandemic levels for almost two-thirds of the countries in the region — in 2022, the median deficit (excluding grants) stood at 6.1% of GDP, according to the IMF. Economists say that one of the main factors behind Africa’s large fiscal deficits has been an increase in state subsidies. Senegal's fuel and electricity supports gobbled up 4% of GDP during 2022, while Nigeria spent $10bn capping the price of petrol. Angola spent 1.9trn kwanza ($2.3bn) on fuel subsidies in 2022, which is more than 40% of what the IMF estimated it spent on social programmes.

In 2023, fiscal consolidation efforts were underway in a number of countries — Kenya and Ghana implemented revenue reforms while Angola and Nigeria undertook subsidy reforms. 

It will be very hard for many African economies to resume the high level of economic growth they experienced before the pandemic without debt forgiveness. Resource-rich African countries are doing reasonably well at the moment but non-resource rich economies are really suffering. The G20 grouping of leading global economies is heavily distracted by events in Ukraine and Israel but it is essential that they push Africa’s bilateral and private creditors towards some kind of wholesale restructuring of the region’s debt. Africa must get rid of this hindrance to growth and it would be better if it took the form of debt relief rather than a rescheduling of the debt repayments. 

— Jason Mitchell is a British financial journalist, based in Africa, who writes about emerging markets, including Africa, the Middle East and Latin America. He specialises in topics related to wealth creation, mining, capital markets, banking and conservation.