We know that the impact of coronavirus is being felt more by those living in developing countries than elsewhere. Vaccine rollout remains painfully unequal and financing to help with the recovery is still completely inadequate. At the same time, new data shows the extent of Africa‘s debt challenges and the urgency needed to fix it before it‘s too late. Here are six reasons why Africa’s debt crisis could be here to stay.
1. African countries‘ debt rose to US$625 billion during the pandemic
Countries around the world spent significant amounts of money in 2020 to combat the health and economic impacts of the coronavirus. That meant debt levels increased worldwide in 2020, and rightly so. This spending made sense to tackle COVID-19 — but even before the pandemic, many African countries were already nearing the limits of how much spending they could afford. Despite the existing strain, debt across the continent rose a further US$45 billion or by 8% in 2020. Twenty-one African countries are either bankrupt or at high risk of going bankrupt.
2. African countries spent US$58 billion on debt repayments in 2020
Despite initiatives to reduce debt repayments during the pandemic, most creditors still got paid. The Debt Service Suspension Initiative (DSSI) has helped postpone US$10.3 billion in repayments to G20 countries so far. And the IMF cancelled about US$850 million for the poorest countries. But private-sector creditors received US$34.3 billion (or 60% of the total) in repayments in 2020, including bondholders, banks and other private sources. And high-income governments, as well as international organisations like IMF and World Bank, still received a significant amount in repayments: US$12.8 billion and US$10.7billion, respectively.
3. The World Bank lent more money but didn‘t suspend debt
The World Bank announced that it mobilised US$157 billion to fight the pandemic. But once repayments are factored in, debt inflows from the World Bank to Africa were lower in 2020 than in 2019. Overall, African countries received US$17 billion from official lenders, up from US$14 billion in 2019.
4. Private lenders received more in debt repayments than they lent in 2020
Private lenders received US$8 billion more in debt repayments than they lent to African countries. This means that they prioritised collecting payments — rather than offering financial support — during the first year of the pandemic.
5. Africa‘s debt payments will remain high
Africa still has to pay US$69 billion in debt repayments in 2021, with another US$185 billion due between 2022 and 2024. Foreign debt payments were 15.5% of Africa‘s exports in 2020 — up from 11.7% in 2019 and three times the 5.3% in 2011. Debt repayments will come at the direct expense of using this income to fight the pandemic.
6. Efforts to tackle Africa‘s debt crisis still don‘t make all lenders participate
Big shifts in who owns African debt have happened in the last decade. The share of Eurobonds (private investors charging commercial rates) in Africa‘s debt rose by 11.2% points since 2010 to 28.7% in 2020. Whilst multilaterals like the IMF and World Bank remain big players with about one-third of Africa‘s total debt, China alone now holds 12%, up from 5% just a decade earlier- and has been Africa‘s top lender for 10 years in a row. Any solution to Africa‘s accelerating debt crisis would need to involve all lenders. Efforts to suspend debt — like the DSSI — failed in part because it didn‘t apply to all lenders.
Bringing Africa‘s debt to sustainable levels will be critical to aiding pandemic recovery. We now have even greater evidence that we need to act now before it‘s too late. Learn more about ONE’s economic response campaign.
