Sub-Saharan Africa debt levels to fall but new funding scarce, says IMF

April 19, 2024

Debt levels in Sub-Saharan Africa are set to fall after a string of sovereign defaults, but new financing is still expensive and hard to come by, forcing spending cuts and endangering growth, the International Monetary Fund (IMF) said on Friday.

The region’s public debt-to-GDP ratio peaked at 60.1% last year and is set to ease to 58.5% in 2024 and 56.8% in 2025, the IMF said in its biannual Regional Economic Outlook report, launched during its Spring Meetings this week in Washington.

It noted that Ivory Coast, Benin and Kenya returned to international capital markets this year with issuances of so-called eurobonds, ending a two-year absence from markets for the region, but at much higher interest rates.

“The return to market is really very important – we call it a pricey recovery, because we don’t want to give the impression that the funding squeeze is over,” said African Department Director Abebe Selassie.

“The access that has been gained comes at a price.”

After painful defaults for Zambia, Ghana and Ethiopia since 2020, a rise in external debt servicing and a fall in funds from overseas has led to the lowest net foreign flows into Sub-Saharan Africa since the global financial crisis of 2008-9, the IMF said.

Furthermore, significant debt repayments that are looming this year and next and financing challenges are forcing countries to cut essential public spending and redirect development funds to debt service, endangering growth prospects for future generations, the report said.

Sub-Saharan Africa has been battered by multiple shocks since 2020, with Russia’s invasion of Ukraine pushing up food, fertiliser and fuel prices and rising global interest rates making new debt prohibitively expensive after COVID-19 had already hammered economies.

Zambia, Ghana and Ethiopia are going through debt restructurings under the Common Framework, a platform set up in response to the pandemic to bring in newer creditor nations such as China and India. However, progress has been slow and Chad completed its Common Framework process without receiving any debt relief.

The current funding squeeze in Sub-Saharan Africa is partly due to a reduction in aid for the past 15 years, compounded by aid being redirected to Ukraine and Gaza and a fall in lending from China, the IMF said.
REUTERS