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As public debt rises in Africa, many are worried about a gradual debt crisis similar to that of the early 2000s.
Abebe Aemro Selbadie, director of Africa Department of the IMF, argues that much of the debt is manageable and external shocks combined with aggressive development spending have been largely responsible for the accumulation. It seems that both countries will be cushioned by the renewed growth of the continent.
In the early 2000s, many African countries, through a series of mbadive loans, were heavily indebted. Reimbursements have begun to overshadow growth and many governments have stopped serving debt, unable to provide basic services to their citizens
. IMF), the World Bank and the African Development Bank have put together an initiative to alleviate some of the pressure. The Heavily Indebted Poor Countries Initiative (HIPC) and its related Multilateral Debt Relief Initiative have eased 36 indebted countries, including 30 countries in the world. Africa. While the continent breathed a sigh of relief, the mutual badurances were clear: never again
However, the average public debt in Africa reached 57% of gross domestic product (GDP) at the end of 2017 – almost doubling in five years . Interest payments on debt went from 4% to 11% of government revenue – levels never seen before before the HIPC program. Indeed, African sovereigns in recent years have been "indebted" with issues in 2017 10 times higher than those in 2016.
Last year's record of $ 18 billion worth of debt. Bond issues is about to be eclipsed half of this year, fueled by investors looking for high returns. While central bank governors say that the loan will result in significant gains and can thus be repaid, many have painful memories of the early 2000s and wonder where the frenzy will end. Mozambique, for example, defaulted on debt repayment last year, raising concern that it is not the only one
Why now?
Until 2016, most African countries growth rates. From 2003 to 2016, GDP in Ethiopia more than doubled, while Rwanda, Ghana, Mozambique and Zambia became very close. However, over the past two years, growth has slowed. "The drop in commodity prices has had a very severe shock at least for commodity exporting countries," says Selbadie. "As could be expected, production has been affected, incomes have been affected, exchange rates have depreciated, and the result of all this is an increase in debt to GDP." Nigeria, Angola and South Africa are good examples
However, he notes that not all African countries have been severely affected by the goods crash. For those who are not dependent on commodity exports, borrowing has increased in line with spending. "You've seen aggressive spending trying to meet development needs, in which case the increase in debt to GDP was expected." Countries such as Ethiopia, Côte d'Ivoire, and the rest of the world are likely Ivory, Senegal and Kenya come to my mind, and these countries have invested heavily in infrastructure, services and agriculture to stimulate growth. as a sustainable and necessary step forward.
Another factor is what Selbadie calls "debt migration." In these cases, debt, which was not previously accounted for in publicly available estimates The examples include undisclosed loans such as Mozambique (see below) or public-private partnerships (PPPs) that did not work as planned.
These considerations contextualize l & # 3 9 and borrowing reveal a heterogeneity not necessarily taken up by the media, explains Selbadie. "It's important to put things in perspective," he says. "Out of 45 countries in sub-Saharan Africa, only 15 countries are experiencing a high level of debt distress or are in debt distress." Six countries – Chad, Eritrea, Mozambique, Republic of Congo, Sudan South and Zimbabwe were judged to be in debt trouble by the IMF at the end of last year. "The rest of the debt levels are manageable," he adds.
Indeed, Selbadie argues that the slowdown in the largest African economies like South Africa and Nigeria stripped the IMF of 3.4%. Compared to this figure, the debt service seems at best difficult.
Yet, at the same time, it should be remembered that Italy, Singapore, Belgium and the United States are among the top 17 countries in the Global Competitiveness Index of the 2017-18 World Economic Forum. Japan, the G7 country, leads with 239.2 percent of GDP, or about $ 8.9 trillion. Africa's debt is not so misplaced as its economies grow at an adequate pace and as debts can be repaid without diverting funds from spending in other key sectors.
Managing Debt [19659002] The IMF has repeatedly stressed the need for African countries to increase domestic revenues in order to stay on top of debt. "Our recommendation is to minimize the impact on spending cuts," says Selbadie. "Engage much more revenue mobilization.There are many opportunities to increase tax collection and promote more investment." Nigeria's tax-to-GDP ratio, for example, n & # 39; It is only 6% – the lowest in Africa Compared to most OECD countries, which push tax rates up to 50%, incomes Africa is remarkably low
For people in debt, however, a more immediate strategy is needed, and it is clear that the six African countries already mentioned need to pursue some sort of restructuring strategy. South Sudan's debt to GDP now stands at 111%, while that of Mozambique reaches 110.1%. "When debt is unsustainable, a new profile is inevitable," admits Selbadie
. is all the greater as loan conditions should become me Favorable in the medium term as the growth of advanced economies wanes. Refinancing could then quickly become more expensive. At the end of last year, Nigeria cleverly refinanced short-term treasury bills denominated in naira currency for $ 3 billion, with a dollar debt at interest rates more favorable. Finance Minister Kemi Adeosun said the government could borrow at a cost of 7% abroad, about half of the interest rate currently paid locally. This is obviously not a long-term solution, but every country in debt distress must find a way to pay back their debt as little as possible before starting to attack the debt structure. its economy.
continent. Selbadie, however, denies that a pattern emerges. "Two examples do not make a trend," he says. The IMF director refers to Mozambique and the Republic of Congo, whose debt not revealed by the multilateral lender was recognized.
In the Republic of Congo, the debt was due to state-owned enterprises borrowing from commodity trading companies. guaranteed by future oil revenues to the government. This debt then migrated to the sovereign balance sheet when oil prices fell and the Central African country is now engaged in talks with the IMF, which encourages severe austerity measures and a debt restructuring in exchange for 39, a rescue plan. Chad tells a similar story. Debt became unmanageable after oil traders' loans – repayable on the basis of sound oil revenues – were embittered after the fall in prices.
Selbadie argues that the fault is not due to the design. "The debt shocks have been either because growth has been weak or you have a shock," he says. "It is exogenous." On the other hand, Mozambique's not-so-distant narrative as an emerging power, backed by large gas reserves, has been completely derailed by poor debt management. Maputo defaulted on its foreign debt last year after revealing loans of about $ 2 billion, which were not disclosed to the IMF in 2016.
The money was borrowed privately to European and Russian banks between 2013 and 2014 to reorganize the fisheries sector An audit published last year revealed that 500 million dollars are not counted.Since then, the country is struggling and the IMF s & # 39; Expects Mozambique to default on its external debt until 2023.
However, the particularly dangerous situation in Mozambique is mainly the result of shady domestic policies and bad decisions. # 39; a line of sovereign defaults could be exaggerated. As Selbadie reminds us, most other debt crises are the result of external shocks – beginning to stop as Africa begins to grow again – and perhaps Mozambique is a case isolated and should not be confused with the rest of the continent. Although concerns about the rising level of African debt are undoubtedly justified, the reasons are best explained by external shocks or critical development spending that, as Africa continues to grow, could find a way to balance
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