African Economies Grapple with Mounting Debt Crisis: Austerity Measures Incite Protests
Sub-Saharan African countries are facing a daunting economic dilemma as they find themselves burdened with overwhelming amounts of debt. To address this predicament, these nations must adopt unpopular measures like cutting spending. However, this has resulted in widespread protests across the region, further complicating matters.
Since 2020, sub-Saharan African economies have been significantly impacted by various shocks, including the global health crisis and conflicts such as the one in Ukraine. Additionally, the continent’s booming population and the adverse effects of climate change have increased the demand for public funds. Last week, the International Monetary Fund (IMF) urged policymakers in the region to reduce costly fuel subsidies and generate more revenue through taxes.
Nevertheless, implementing higher taxes has sparked outrage among populations already grappling with the escalating costs of living. Furthermore, fuel subsidies enjoy widespread popularity and their removal has also contributed to the protests. Countries like Ghana, which defaulted on its debts last year, and Kenya, which needs to repay or refinance a $2 billion international bond before June, have witnessed violent demonstrations against tax hikes and subsidy cuts.
Despite these challenges, the IMF warns that more trouble lies ahead if economies continue along their current fiscal trajectory. In a recent report, the IMF cautioned that the debt-to-GDP ratio in the region, which has already doubled to 60% over the last decade, could climb an additional 10 percentage points within the next five years. This exacerbates the already limited resources available to governments.
According to a UN report from July, interest payments for developing countries’ debts have grown at a faster rate than public spending on crucial sectors such as health, education, and investment. In sub-Saharan Africa, the ratio of debt interest payments to government revenues has more than doubled over the past decade, reaching 10.5%. This is approximately three times higher than the ratio in developed countries, as noted by the IMF. In several nations, the ratio is even higher, with Fitch Ratings agency forecasting that it could reach 40% in Nigeria and 28% in Kenya next year.
The high interest rates make it prohibitively expensive for most African countries to refinance their debt, further weakening their currencies against the US dollar. Consequently, there is a growing fear regarding the impact on essential services. Abebe Selassie, the African department director at the IMF, emphasized the vital importance of protecting spending on health and education. However, if the current situation persists, there is a real risk of these sectors being adversely affected.
Oxfam International has projected that public spending in real terms could decline over the next five years in 26 sub-Saharan African countries. This could potentially undermine efforts to address the economic conundrum at hand. Anthony Kamande, the inequality research coordinator at Oxfam, highlights the importance of education in boosting productivity and human capital. However, he questions how this can be achieved if the limited resources available are solely channeled towards debt servicing.
Navigating the debt crisis in sub-Saharan Africa requires a delicate balance. While reducing debt is essential for sustainable economic growth, it should not come at the expense of crucial public services and investments in human capital. The region’s policymakers face a daunting task as they strive to find a solution that addresses the mounting debt crisis while also ensuring the well-being and development of their citizens.
