Africa risks racking up debt as countries battle inflation

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By The East African

African governments are three times more indebted to Western private creditors than they are to China, according to a report by British firm Debt Justice published this week.

Using data from the World Bank and the International Monetary Fund (IMF), Debt Justice estimates that 35% of the continent’s external debt is owed to banks, asset managers and oil traders in the West, the Chinese lenders accounting for around 12%.

Of the $444 billion in debt repayments that African governments will have to shoulder between 2022 and 2028, $156 billion or 35% will go to these private creditors, compared to $83 billion due to China.

Read also : Prospects for East Africa’s economic recovery face headwinds

Since the November 2020 launch of the G20 Common Framework, three countries – Ethiopia, Zambia and Chad – have requested support under the program to provide debt restructuring in response to debt levels unsustainable. So far, none have received debt relief.

The IMF has called for the initiative to be stepped up, warning that countries could face “economic collapse” if global debt relief action fails.

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Now, the Ethiopian authorities have approached their creditors to expedite relief decisions to help the country balance its fiscal needs following various crises. The decision taken this week reflects the situation in several African countries which could see their post-Covid-19 reconstruction efforts drowned in growing debt or weakened currencies.

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Ethiopia’s parliament last week approved a budget of 786.61 billion birr ($15.17 billion), an increase of 16.6 percent from last year. But the country may need to borrow at least 232 billion birr ($4.45 billion) to make up the shortfall.

Zambia, for its part, is struggling to qualify for debt relief, while Ghana has approached the IMF to help manage rising inflation.

Nigeria, Tunisia and Ghana found themselves in the same risk pool, facing constant burdens to repay their debt.

Ethiopian debt

Ethiopia faces the double burden of paying and bringing the country back to its pre-Covid 9.5% growth.

Its latest budget shows that debt reduction will be a priority if the country is to slow economic growth and recover from the Tigray conflict.

Ethiopia’s outstanding $1 billion Eurobond matures next December and authorities have said they will service it, alongside $66 million in annual interest. Bondholders can accept deferred repayment, but this will force Addis Ababa to pay more interest.

However, under the G20 credit, the country can still pay as agreed if the committee refuses to provide the appropriate deadlines as requested.

This week, Minister of State for Finance Eyob Tekalign was in Paris to meet with various stakeholders on the sidelines of the Paris Forum, to discuss debt repayments and a potential for the country to come back and borrow “to the long term,” said a dispatch. , suggesting a possible reborrowing to extend the repayment schedules.

“The Minister of State briefed the bondholders on Ethiopia’s current macroeconomic performance and strong commitment to ensure coupon payments despite the significant headwinds facing the global economy,” the official said. Ministry of Finance in a note.

The Paris Forum, often called the Paris Club, brings together countries that lend money to poor nations.

Since last year, they have been discussing coordinated ways to provide relief to heavily indebted countries as they recover from the Covid-19 pandemic.

For Ethiopia, the pandemic has aggravated the conflict in Tigray, which authorities say has caused $2.5 billion in damage to infrastructure, displaced 2.1 million people and left 600,000 more in limbo. near starvation.

Paris Club talks

In his speech to the House of Representatives on July 7, Ethiopian Prime Minister Aby Ahmed admitted that insecurity had hurt development and told lawmakers that his administration was prioritizing debt reduction, reducing the budget deficit, efficient use of resources, stabilization of inflation, humanitarian aid and national peace. Security.

“We recognize what is at stake and therefore our response continues to strengthen the security sector which is independent of ethnic preference, religious preference, political affiliation and personal gain. There is progress in this regard,” said Dr Abiy.

Read also : Eyes on EA central banks as inflation bites

Zambia is also seeking to please creditors and is rolling out a cocktail of measures, including the cancellation of projects worth more than $2 billion financed by commercial loans, as negotiations with international creditors gather pace.

Two years ago Zambia became the first country to default on international loans and at the end of last year its external debt stood at $17.27 billion.

China, which owes $5.78 billion, is Lusaka’s largest bilateral creditor after former President Edgar Lungu’s administration borrowed heavily from Beijing to roll out infrastructure projects.

The government of President Hakainde Hichilema, which came to power last year, announced this week that it was canceling projects as part of efforts to meet terms set by creditors.

Zambian lawmakers are also considering a new law that will set strict limits on public borrowing and improve transparency. The Public Debt Management Bill proposes that lawmakers approve an annual borrowing plan prepared by a debt management office.

Clifford Zulu, a Lusaka-based economics commentator, said the proposed law would ensure transparency in acquiring foreign loans and cap what the government can borrow.

“If the bill is passed as expected, the Minister of Finance will have to seek the approval of the National Assembly before the government takes out a loan and this is a very progressive provision,” Zulu said.

“Most importantly, the creation of a debt management office means that the government has qualified advisers who will ensure that the debts we take on in the future are sustainable.”

Lily: Relief for Zambia as China rejoins its debt resolution mechanism

In December last year, the IMF agreed to provide Zambia with an extended $1.4 billion credit facility, but delays in debt restructuring, particularly with China, have delayed the disbursement.

Officials said crucial negotiations were slow as Zambia had a large number of creditors.

In Ghana, President Nana Akufo-Addo is in talks with the IMF for a relief package.

The country recorded an inflation rate of 29.8% in June, which saw four teachers’ unions demand a pay rise to cope with rising prices. Citizens also took to the streets two weeks ago to demand government action in the face of high commodity prices.

In Nigeria, the Debt Management Office announced that the country’s public debt, which stood at N39.55 trillion ($70.6 billion) in September 2021, is now N41.6 trillion. naira ($74.3 billion).

Nigeria’s overall deficit in the 2022 budget was 6.3 trillion naira ($11.3 billion), or 3.46 percent of the country’s GDP, to be financed through debt.

However, with the country’s national debt to GDP ratio at 35.51%, analysts suggest the debt is still within reasonable limits. According to the World Bank, a debt-to-GDP ratio above 77% for an extended period can have a negative impact on economic growth.

By Aggrey Mutambo, Kitsepile Nyathi, Kemo Cham and Mohammed Momoh

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