Public debt in Africa rises to $707b in 2017 – Economic Report
… Ghana’s public debt rose to 145% in the same year
Not long ago the ‘Africa Rising’ narrative was in vogue. The continent was touted as the next big thing with prospects of high economic growth, leading to job creation and prosperity. Flames of hope were stirred for the continent imbued with some of the most precious sought after natural resources, like gold, diamond, cocoa, coffee, copper, cobalt, uranium, oil and gas.
But that hope soon dipped, turning into despair, as the indicators for the predicted economic boom slumped, Africa became desperate and gasping for breath, countries on the continent, in spite of the abundant resources, including human, turned to what most of its leaders thought was the only way out – seek loans! With rising debt, the continent is now being suffocated and some countries are in distress with others facing the risks of debt distress.
Africa’s stock of public external debt averaged about $309 billion over 2000–2006 and then rose further to $707 billion in 2017, with a 15.5 per cent increase from 2016 alone.
The Economic Report on Africa, notes that in 2017 debts rose to the highest levels in Eritrea (131 per cent of GDP), Cabo Verde (126 per cent), Sudan (126 per cent), Gambia (123 per cent), Congo (119 per cent), Egypt (103 per cent) and Mozambique (102 per cent). At the same time, ratios of public debt to GDP have been rising steadily, giving rise to worries about sovereign defaults and fiscal vulnerabilities, it says.
The Report by the Economic Commission for Africa, released March 23, 2019 at the ongoing 52nd Session of the Conference of African Ministers of Finance, Planning and Economic Development, in Marrakech, Kingdom of Morocco paints a distressing picture of the debt situation in Africa.
According to the Report, public debt rose in Africa in 2017, reaching 59.1 per cent of GDP. The high and rising debt created debt vulnerabilities for many African countries.
“About 40 per cent of low-income countries now face debt servicing challenges, and an increasing number of countries are at high risk of debt distress or in debt distress. Five countries are in debt distress today (Chad, Mozambique, South Sudan, Sudan and Zimbabwe) compared with none in 2014,” it said.
And for Ghana, the public debt rise was close to 145 per cent between 2010 and 2017 (from $9 billion to $22 billion), the Report said.
The Report shows that with 16 African countries in debt distress or high risk of debt distress, low government revenue is the most common factor, pointing out that to ensure debt sustainability, countries need to increase the mobilization of tax and non-tax revenue and deepen the domestic capital market with increased reliance on local currency—denominated loans.
The Report indicates that with the slowdown in economic growth and low commodity prices, Africa’s fiscal deficit also peaked at 11.3 per cent of GDP in 2015 before declining to 5.0 per cent in 2018.
“As one of the instruments used by many African countries to partly finance their fiscal deficit, total public debt (general government gross debt) also increased, from 40 per cent of GDP in 2012 to 59 per cent in 2017. However, Africa’s average debt to GDP ratio conceals widely different experiences, in part reflecting different resource endowments. The median public debt increased most noticeably among oil-exporting countries. Public and publicly guaranteed debt soared from an average of just over 20 per cent of GDP in 2011–2013 to 57 per cent in 2017. A similar level of public indebtedness was recorded in non-resource-rich economies with a history of government borrowing,” it said.
It indicates that Cabo Verde’s high public debt reflects the government’s fiscal policy focus since 2005 on expanding the tax base and increasing public investment.
“These policies reduced the fiscal deficit (from 5.6 per cent in 2015 to 4 per cent in 2017), but domestic resource mobilization fell short of spending targets. Government borrowing increased, aimed at addressing the public expenditure challenges, declining productivity and restructuring of public enterprises, as well as the negative effects of external shocks (including weak economic growth in Europe, which reduced tourism),” the Report said..
In West Africa, the Report finds that Benin’s public debt exceeded 50 per cent of GDP, while Ghana’s borrowing rose even higher, from 39.2 per cent of GDP in 2004–2008 to 71.8 per cent in 2017.
According to the Report, most of the rise reflects increased external borrowing by middle-income countries, with five of the six largest economies on the continent accounting for more than half of public external borrowing in 2017. South Africa borrowed $176 billion externally, followed by Egypt at $82 billion, Morocco at $49 billion, Nigeria at $40 billion and Angola at $37 billion.
The total debt stock was lower in some of the frontier markets than in middle-income countries, but the increase over the past few years was nonetheless considerable. For instance, Ethiopia’s external debt stock rose more than 250 per cent, from $7.3 billion in 2010 to $26.5 billion in 2017. Kenya’s pace of external debt accumulation was similar, with external debt stocks rising from $8.8 billion in 2010 to $26.4 billion in 2017 (nearly a 200 per cent rise).
“Ghana’s public debt rise was close to 145 per cent between 2010 and 2017 (from $9 billion to $22 billion),” it said.
Authors of the Report note that the increase in external debt accumulation raises concerns about debt sustainability in many African countries, especially as external debt stocks have risen much faster than economic growth owing to rising interest rates in international capital markets.
While it is expected that the debt levels would drop or even level, there is need for African countries to put in place among others, policies to address the need for resource mobilization and responsible governance that enables transparency and accountability, doing business as usual would not address the issues that has brought the continent to this route.
By Emmanuel K. Dogbevi, in Marrakech, Morocco
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