- AFRODAD and SADC have joined hands to boost Africa’s debt sustainability by cushioning highly indebted countries.
- Between 2004 and 2018, 30 African countries signed natural resource-backed loans worth $66 billion.
- China has emerged as a critical player in debt owed by African States, with an increasing percentage of debt now in resource-backed loans.
Boosting Africa’s debt sustainability
The African Forum and Network on Debt and Development (AFRODAD) has entered into a debt sustainability pact with the Southern African Development Community Parliamentary Forum to cushion governments from debt distress.
The move aimed to bolster financial stability and debt management strategies across Africa, with the continent’s total external debt hitting $1.13 trillion in October last year.
Highly indebted African countries continuously face stark trade-offs between servicing expensive debt, supporting high and growing development needs, and stabilising domestic currencies.
Government debt has risen in at least 40 African countries over the past decade. As a result, some are experiencing a bad combination of high debt and elevated development spending needs amid budget shortfalls and unfavourable exchange rate pressures.
The agreement solidifies the commitment of both organizations to collaborate in advocating for sound financial and debt management policies, particularly in light of the myriad challenges facing African nations.
The partnership seeks to reinvigorate its capacity to address political, economic, and social imperatives by providing technical assistance to African governments and parliaments.
Central to this initiative is adopting the SADC Model Public Financial Management (PFM) Law, which lays the groundwork for realizing the objectives outlined in the Abuja Treaty to establish a robust African Financial Architecture.
“Effective financial governance is paramount for sustainable development and the realization of socio-economic rights. Our collaboration with AFRODAD through this forward-thinking MoU is poised to advance sound financial and debt management practices, laying the groundwork for a Model Law on Climate Action rooted in sustainable financial commitments,” said SADC Parliamentary Forum, Secretary General Honourable Boemo Sekgoma,
The debt issues have become more pressing since 2022 when persistently high inflation prompted significant central banks worldwide to embark on the most aggressive monetary tightening campaign in decades. Monetary policy tightens when central banks raise interest rates.
Since then, global interest rates have climbed even higher, triggering a jump in repayments on external loans and adding to debt burdens accumulated over the last decade.
Read Also: Kenya’s Debt Distress Threat to its Long-Term Development Agenda -Experts
AFRODAD Debt Concerns
Echoing Sekgoma’s sentiments, AFRODAD’s Executive Director, Mr Jason Rosario Braganza, highlighted the transformative potential of the collaboration.
“This partnership signifies a crucial step towards strengthening our joint commitment to responsible debt management and robust financial systems. By leveraging our collective expertise, we aim to empower parliaments and stakeholders to take a leading role in shaping policies that address climate action and financial sustainability,” he said.
The signing of the MoU heralds a significant milestone in positioning Africa as a proactive force in sustainable development and climate justice.
Through concerted efforts, the SADC Parliamentary Forum and AFRODAD aspire to empower governments, engage citizens, and elevate sound financial governance as a cornerstone of management across the continent.
Late last year, African Development Bank Group President Akinwumi Adesina warned that tightening US and European monetary policies has raised interest rates. Consequently, the costs of debt servicing Africa’s external debt have risen significantly.
These combined effects have led to 25 African countries falling at risk of high debt distress or debt distress.
“As a result, the external debt service payments due for 16 African countries will rise from $21.2 billion (Sh3 trillion) in 2022 to $22.3 billion (Sh3.1 trillion) in 2023,” said Akinwumi.
China has emerged as a critical player in debt owed by African States, with an increasing percentage of debt now in resource-backed loans.
Oil, minerals, and commodities guaranteed most of the loans. Moreover, the commodity price crash in 2014 threw 10 out of the 14 countries that used natural resource-backed loans into serious debt problems.
Africa’s External Debt Rankings
Kenya ranks third among African countries regarding government debt to gross domestic product (GDP). According to the World of Statistics, Kenya’s debt-to-GDP ratio is 67.3 per cent. Eritrea ranks first among the most indebted African countries with 164 per cent.
Moreover, according to data from the Central Bank of Kenya (CBK), public debt reached $73 billion in December. This debt consists of $36 billion in domestic debt, $303 million in publicly-guaranteed debt, and $37 billion) in external debt.
South Africa ranks second among African countries, with 67.4 per cent. Nigeria ranks fourth with 38 per cent, with the four countries being the only ones to make the list. On the other hand, the Democratic Republic of the Congo has the lowest government debt-to-GDP ratio in Africa, at 15.2 per cent. Burundi follows closely at 15.9 per cent and Botswana at 18.2 per cent.
