Over the years, Africa, despite being a resource-rich continent has been grappling with high debt levels forcing governments to allocate a substantial portion of their revenue to repayments while starving investments in infrastructure, education and healthcare.
As a result, the economic development of African nations is being hampered, and their competitiveness globally is being diminished.
However, Africa’s journey toward reducing its debt burden requires a comprehensive and strategic approach. The report titled state of Play of Debt Burden in Africa published by Afreximbank, predicts a decline by the end of 2024.
It underscores major consequences of high debt levels, particularly their adverse effects on economic growth.
The report emphasises that for Africa to start experiencing debt reduction, adoption of sound economic policies and fiscal discipline is crucial. It also stresses the need for diversified economies to ensure long-term sustainability.
The report’s key focus is on composition and structure of debt. It highlights that countries with high levels of external debt or short-term obligations are particularly vulnerable to economic shocks.
This underscores the need for a balanced debt management approach that takes into account both domestic and external factors.
It also stresses the crucial relationship between economic growth and debt sustainability. It points out that strong economic growth can enhance debt sustainability by increasing State revenues and reducing the debt-to-GDP ratio, while weak growth can exacerbate debt challenges.
We all agree that high debt levels have negatively affected investment, especially in climate, as investors view significant public debt as a risk factor.
It has also cut foreign direct investment (FDI) inflows. Further lowering FDI limits job creation and economic diversification, making it more challenging for countries to build resilient economies.
Moreover, servicing debt constrains governments fiscal policy options, limiting their ability to respond to economic crises or invest in long-term growth strategies. This stifles innovation and adaptability to changing economic conditions.
High debt often forces governments to cut essential public services, including healthcare, education, and social welfare. This disproportionately affects vulnerable populations, exacerbating poverty and inequality as access to vital services declines.
It can also drive inflationary pressures, mainly when governments print money to meet obligations. This destabilises local currencies, increases the cost of living, and further strains household budgets. Inflation, in turn, diminishes individuals purchasing power, creating a vicious cycle of economic hardship.
The strain caused by high debt can also lead to social unrest and political instability.
Citizens frustrated with austerity measures and low public services may lead to public frustration, further complicating governance and debt management efforts.
Internationally, countries burdened by high debt often rely heavily on external assistance and may face conditions imposed by international financial institutions, which can undermine their sovereignty.
To address these challenges, the report offers several policy recommendations.
It advises countries to adopt sound economic policies, improve governance, and implement structural reforms to boost economic resilience.
The report outlines strategies for navigating debt challenges and promoting sustainable growth. These include implementing fiscal discipline, managing public spending efficiently, and prioritising investments with high economic returns.
Strengthening governance and institutional frameworks is critical for improving transparency, reducing corruption, and ensuring efficient resource use. This builds public trust and contributes to long-term stability.
Diversifying economies is essential to reducing vulnerability to external shocks. Many African countries depend on a narrow range of exports, making them susceptible to global market fluctuations.
By developing various sectors—such as agriculture, manufacturing, and services—countries can create stable revenue streams and enhance resilience.
Strengthening domestic revenue mobilisation, improving tax collection, and broadening the tax base is crucial for servicing debt and funding development projects.
For countries with unsustainable debt, restructuring negotiations with creditors may provide relief by extending repayment periods, reducing interest rates, or negotiating partial debt forgiveness.
Additionally, international support from organisations like the International Monetary Fund (IMF) and the World Bank can offer financial assistance, technical expertise, and policy advice to help manage debt and implement reforms.
Therefore, effective debt management, building resilience against external shocks, and fostering economic growth call for transparency and robust governance structures.
African governments can achieve economic stability by investing in vital industries, boosting domestic tax mobilisation, and restructuring debt if needed.
Collaboration with international financial institutions will further support these efforts, helping countries navigate the complexities of debt management and achieve sustainable development for the benefit of their citizens.
The writer is Kenya’s Ambassador to Belgium, Mission to the European Union, Organization of African Caribbean and Pacific States and World Customs Organisation.
