Africa’s Silent Debt Crisis: Implication for Economic Development

Africa’s overall debts have reached disastrous heights in recent years, mirroring the continent’s debt crisis of the 1980s/1990s, yet action for debt alleviation, through restructuring and relief, remains limited. By the end of 2023, total external debt owed by African countries reached 1.52 trillion USD (Obadare, 2024), and servicing costs for these have become unsustainable. The crisis status of Africa’s debt can be credited largely to new loans by private creditors, external shocks (e.g. the COVID-19 pandemic), and the “Africa premium” in lending patterns.

Beginning in the 1990s, the IMF and the World Bank led debt relief programs, the Heavily Indebted Poor Countries initiative and Multilateral Debt Relief Initiative, respectively (Debt Justice). These provided debt assistance to countries where action was deemed necessary, many in the African continent. Despite such large-scale debt relief, a recent World Bank study found that 26 countries are now in deeper debt than they were in 2006 (Cascais, 2024). Most of these are located in Sub-Saharan Africa. Current average external debts in Africa are at an average of 24.5% of GDP (Harcourt et al., 2024). Simultaneously, debt servicing payments continue to increase annually, while overall education spending is decreasing; now the average African country spends almost the same amount on debt as it does on education (ibid).

Ghana and Zambia

Though each country is unique, we can identify common factors which drive African debt crises. Ghana and Zambia serve as examples of nations where debt reached high unsustainability levels to the point of necessitating complete debt restructuring. 

By 2006, Ghana’s debt dropped to 2.3 billion USD after debt relief, compared to its 2003 level of 6.6 billion USD (Cascais, 2024). Yet in 2022, the country was forced to undergo debt restructuring once again, led by the IMF (IMF “Ghana”, 2024). In Ghana’s case, a reliance on primary commodity exports led to its downfall; between 2013 and 2016, global prices for gold dropped significantly (Debt Justice). This increased Ghanaian debt burden through two channels – decreased funds for debt servicing and the devaluation of the cedi (Ghana’s currency), problematic as external debts must be paid in foreign currency (ibid). The COVID-19 pandemic further exacerbated these circumstances through decreased demand for Ghanaian exports. It seems that Ghana has been recovering from 2020 through reduced debt servicing costs; the country is experiencing slow, but steady growth in recent years (Ghana Ministry of Finance, 2024).

Like Ghana, Zambia defaulted on its debt in 2021, forced to undergo debt restructuring under the G20 “Common Framework” (Jones et al., 2024). Though also a debt relief recipient in 2005 under the “Heavily Indebted Poor Countries” initiative, Zambia’s debt was declared “unsustainable” in 2022 by the IMF (Grigorian & Bhanaya, 2024). In the 2000s, Zambia received significant investment, particularly from China, utilised to build infrastructure and diversify its economy (ibid). These loans, however, have further exacerbated Zambia’s debts, as the country continued to borrow despite already being heavily indebted. During the COVID-19 pandemic, Zambia experienced high inflation (19.2%) and sharp decreases in copper prices and tourism (Jones et al., 2024). All of these factors combined to place the country in a crisis. Thus, Zambia became the first country to default on its debts during the COVID-19 pandemic and undergo debt restructuring under the G20 Common Framework. In 2020, Zambia had an external debt of  $18.6 billion, and has since undergone various debt restructuring programs to manage its servicing payments (AFP, 2024). A recent agreement under Zambia’s G20 Common Framework 2020-24 sovereign debt restructuring has decreased interest rates to 1.0% in the next 14 years (Grigorian & Bhanaya, 2024). Criticisms of the agreement highlight a lack of provisions in loan terms, should Zambia experience external shocks halting its ability to make payments once again (ibid).

Since 2020, more nations have defaulted on their debts and requested restructuring agreements, drawing attention to the increasing debt problem in Africa. Djibouti was unable to pay its debts to China in 2023 (IAO, 2024), four African nations applied for Common Framework debt restructuring in 2024 (Common Framework), and many more countries (e.g. Malawi, Mozambique, Angola) have entered discussions with the IMF and the World Bank to relieve debt burdens (Cascais, 2024).

Lending Problems

Lending options for African nations have changed in the past decade, with private creditors now holding significant amounts of Africa’s debt, rather than official creditors, such as the World Bank and the IMF. In fact, 43% of Africa’s debts are owed to private lenders (Harcourt et al., 2024). Private loans have proven problematic, as these are non-concessional, and countries facing external shocks cannot negotiate loan terms (ibid). Since investors deem investment in Africa a “risk,” these loans are often doled out with incredibly high interest rates (Debt Justice). Though evidence shows that overall, Africa is less likely to default on loans compared to Asia and Latin America (5.5% fault rate versus 8.5% and 13.5%, respectively), skewed perceptions of continental instability drive unreasonable lending patterns (ibid).

Consequences of debts

High debt servicing costs prevent countries from investing in development and improving quality of life for their citizens. When Ghana received debt relief in 2006, increased funding went towards developmental goals, education and health (Cascais, 2024). This funding dropped significantly as debt servicing costs increased. The country also experienced downward trends in poverty beginning in the 1990s, then poverty increase in 2020 as debts increased (World Bank, 2024). Currently, 25 African countries spend more on interest payments than on health and food security (IOA, 2024). Though only 15% of children in Malawi complete secondary school, the country spends twice as much on debt servicing than on education (Debt Justice, 2024). High unpaid debts also prevent countries from accessing loans for infrastructure creation and other developmental initiatives (IOA, 2024).

Conclusions

Moving forward with development goals for Africa requires addressing its debt crisis. After the COVID-19 pandemic, burdens from these have reached unpayable amounts, blocking investments into nation-building efforts such as health, education, and infrastructure. Increased non-concessional loans from private creditors, unfavourable loan terms (i.e. the Africa premium), and external shocks – often compounded by an overreliance on primary commodity exports all have driven current fiscal crises in the African continent. High debt servicing payments prevent states from investing in poverty alleviation, but also from focusing on economic diversification, thus pushing countries into new debt traps. It is clear that action is needed to alleviate debt burdens, whether through restructuring or through relief.

Annette Sorensen is a Fellow at the Sixteenth Council.