Kenya and Sudan are on the list of Africa’s top 10 largest external borrowers, raising debt sustainability concerns and worries over their capacity to repay the loans without compromising development and day-to-day government running.

 

A new study by the Afreximbank, whose findings were released late in December, shows that African countries’ external debt has increased significantly over the past two decades, reaching $1.16 trillion in 2023, accounting for 60 percent of the region’s total public debt.

This is largely blamed on both external and domestic factors, including recent global financial and health crises, the end of the commodity super cycle, and geopolitical tensions that have precipitated conflicts, and the need to finance mega infrastructure projects, putting a fiscal strain on governments.

The report, Africa in Figures 2024; Transforming Africa’s Trade shows that in 2023, about 67 percent of Africa’s external debt was concentrated among 10 countries led by Egypt (14.5 percent), South Africa (14.3 percent), Nigeria (8.4 percent), Morocco (5.9 percent), Mozambique (5.5 percent), Angola (5.3 percent), Kenya (3.7 percent), Tunisia (3.4 percent), Sudan (3.1 percent), and Ghana (3 percent).

During the review period, nine countries, including Ghana, Malawi, Sudan, and Mozambique, were rated as being in debt distress, while 17 others were at high risk of debt distress.

“The high level of the continent’s external debt has raised sustainability concerns, with key indicators breaching their prudent thresholds. In effect, the debt-to-GDP ratio for Africa has been above the prudent threshold of 50 percent since 2016, reaching about 68.6 percent in 2023,” the report says.

According to the study, the ratio of debt-to-exports remained elevated, at 194.5 percent in 2023, with 22 out of 50 countries exceeding the threshold of 180 percent.

With regard to the debt service-to-revenue ratio, 17 of 50 countries had ratios above the 20 percent threshold in 2023. But forex reserve adequacy stood at 6.1 months of import cover in 2023, with 34 out of 50 countries meeting the threshold of three months.

The report notes that loan defaults in Africa decreased by 13 percent in 2023 to $129.9 billion, attributed to debt restructuring and improving economic conditions.

The Paris Club was the largest source of these defaults, accounting for 24.3 percent, while China had the second largest share, at 16.7 percent. Defaulted amounts included $22.9 billion from Sudan, accounting for 17.6 percent of the continent’s total defaults.

The composition of African debt has changed significantly. While previously the majority of African external debt was owed to official creditors – high-income countries and multilateral lenders like the World Bank and IMF – currently, China and private creditors make up a large proportion of debt stocks, meaning more debt is non-concessional.

More than 43 percent of Africa’s external debt is owed to private creditors, 23 percent to bilateral creditors and 34 percent to multilateral creditors.

African countries have had to take on even more debt as a result of the Covid-19 crisis, the Russian invasion of Ukraine, and soaring inflation. And now 20 low-income African countries are either bankrupt or at high risk of debt distress.

Areas of progressBut some progress has been made toward sovereign debt resolutions in the context of the G20 Common Framework, the Paris Club, and bond holders.

For instance, within the Common Framework, Chad was the first country to conclude an agreement with its bilateral creditors in October 2022, and with private creditors, including Glencore Plc, shortly thereafter.

In 2023, Zambia became the second country to conclude a debt restructuring agreement, reaching a milestone with bilateral creditors, including China, to restructure $6.3 billion. It reached a subsequent formal agreement with its sovereign bondholders in March 2024 on the restructuring of $3 billion.

Ethiopia and Ghana also achieved progress under the Common Framework. In November 2023, Addis Ababa reached a temporary debt service suspension agreement with its official bilateral creditors and is in the process of negotiating with its bondholders to restructure its sole sovereign bond maturing in 2024, worth $1 billion.

In early December 2022, the government of Ghana launched the first stage of the Domestic Debt Exchange Programme, a voluntary approach designed to reduce debt servicing costs and extend the maturity of domestic bonds.

In June 2024, Accra signed an agreement with its official creditors to restructure $5.4 billion, and it has also reached a preliminary agreement in principle to restructure $13 billion owed to international bondholders.

In December 2023, Somalia reached Completion Point under the enhanced Heavily Indebted Poor Countries Initiative with the achievement of this milestone reducing the country’s external debt to sustainable levels and allowing Somalia to re-enter international markets and regain access to new external financing.

Globally, developing countries spent a record $1.4 trillion in 2023 just to service debt, which amounted to nearly four percent of their gross national income (GNI), according to the World Bank’s International Debt report 2024.

Ballooning interest payments accounted for most of the increase in overall debt service payments while principal repayments remained stable at about $951 billion, but interest payments surged by more than a third, to about $406 billion.

Fierce squeeze“The result, for many developing countries, has been a devastating diversion of resources away from areas critical for long-term growth and development such as health and education.

The squeeze on the poorest and most vulnerable countries — those eligible to borrow from International Development Association (IDA) — has been especially fierce. Their interest payments on external debt have quadrupled since 2013, hitting an all-time high of $34.6 billion in 2023,” the World Bank said.“On average, interest payments now amount to nearly six percent of the export earnings of IDA –eligible countries— a level that has not been seen since 1999. For some, the percentages range from 10 to as much as 38. Thus more than half of IDA-eligible countries are either in debt distress or at high risk of it. No wonder that private creditors have been retreating even as multilateral financing increases.”According to the World Bank, Kenya’s total external debt stock increased to $42.91 billion in 2023, from $ 41.55 billion in 2022, while Sudan’s rose to $22.58 billion from $22.44 billion in the same period.

Compared to other East African countries Burundi’s external debt stock increased to $1.04 billion from $955 million while that of the Democratic Republic of Congo increased to $11.06 billion from $ 9.71 billion.

Rwanda’s external debt stock increased to $11.38 billion in 2023 from $9.69 billion in 2022 while that of Uganda declined to $19.39 billion from $20.4 billion in the same period.

Tanzania’s increased to $34.59 billion from $30.37 billion, while that of Somalia fell to $3.02 billion from $4.08 billion.​

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