Africa: its solutions to free itself from the yoke of debt

In the face of Africa’s growing debt, the international community is struggling to agree on financial mechanisms to support the region. For its part, Africa is not letting up the pressure either. In the wake of the World Bank and International Monetary Fund Spring Meetings held in Washington in mid-April, 45 African Ministries of Finance, Planning and Economic Development came together in a working level to call for decisive action to reform the global debt architecture.

The continent is heavily impacted by the war in Ukraine and the pandemic. “Public debt and inflation are at levels not seen in decades” in sub-Saharan Africa, noted a recent IMF report titled “The Great Financing Gap”.

Public debt reached 56% of GDP in sub-Saharan Africa at the end of 2022, the highest since the beginning of the 2000s, notes the IMF, which lowered its growth forecast for the region this year to 3.6%. For the Washington-based organization, several issues have collided, from rising borrowing costs to the aftermath of the latest international crises, to the drying up of international aid. Their borrowing costs are three times higher than those of advanced states, the Fund calculated. And the Organization for Economic Co-operation and Development (OECD) also reported a drop in development aid to Africa last year – to around $30 billion – as it soared to Ukraine.

Currently, 22 countries are at high risk of debt distress or have already reached it, the World Bank calculated in a report released in early April. Among them, Ghana and Zambia, which defaulted, as well as Malawi and Chad, under IMF assistance.

Zambia illustrates the difficulties of the international community to mobilize. Negotiations for a restructuring of its debt, a necessary step to unblock the IMF aid plan, have been underway for two years, without any real success so far. This process is part of the G20’s “common framework” for the restructuring of the debt of the poorest states, which often comes up against blockages from China, which has become an essential lender on the continent.

This sluggish progress echoes other promises still not kept, such as increasing funding to poor countries for adaptation to climate change to 100 billion dollars per year or reallocating to vulnerable countries the equivalent of 100 billions of dollars of IMF “special drawing rights”, equivalent to one printing press of the institution.

Other reforms concerning the development banks with the objective of making them work together more, to make them lend more and to encourage them to involve the private sector are also under discussion.

A joint report by Boston University, the Heinrich-Böll-Stiftung and the University of London, published on April 6, shows that, out of some sixty countries that are over-indebted or at risk of being so, more than 812 billion dollars of debt must be restructured. However, so far, only Chad has succeeded in concluding an agreement under the aegis of the common framework drawn up by the G20.

Some grounds for hope, however: the IMF has assured that Beijing “will meet its commitments” on Zambia, while India, which leads the G20 this year, hopes to see an agreement on debt restructuring “soon” from several countries, including Ghana and Zambia. China has so far believed that the international financial institutions (IFIs) should also bear part of the financial loss induced by the restructuring, a position which seems to have changed in recent days.

It is in this context that the 55th Conference of African Ministers of Finance, Planning and Economic Development of the ECA was held at the end of April, around ministers, pan-African institutions, such as the African Union, Afreximbank as well as as the World Bank, and IMF staff. The objective is twofold: to strengthen the African voice on this urgent file, and to accelerate the global agenda, by putting on the table proposals for reform of the international financial architecture.

Several high-level meetings are planned in the coming months, such as the Roundtable on Sovereign Debt, a joint initiative of the Indian Presidency of the G20, the IMF and the World Bank. An international conference on financial aid to countries of the South will also be held in Paris on 22 and 23 June, as well as a summit on climate action, while another is also planned on climate ambition and that the SDG summit will be held in September. So many meetings that African leaders intend to turn into opportunities. Among the other objectives, there is the major subject of the representation of the continent in international bodies. Ministers expressed their hope that Africa, represented by the African Union, will finally obtain a permanent seat in the G20, thus further strengthening its voice on the world stage. Another area of ??concern is credit ratings, which many ministers consider biased when it comes to African countries.