Economies in Africa in peril

A rising debt bill in Africa is wrestling away funds needed for infrastructure and dampening hopes of a speedy recovery from the economic fallout of the coronavirus pandemic.

As export and tax revenue decline due to subdued global demand and domestic activity, debt costs are eating up a larger share of countries’ income in a region that already spends less than any other on infrastructure.

After 25 years of uninterrupted economic growth, gross domestic product in sub-Saharan Africa could contract by 2.8% this year, according to the World Bank.

Nigeria spent seven times more on debt than new bridges and highways in the first quarter.

Sub-Saharan Africa’s external debt-service bill will be $36.6 billion (R 616.87 billion) this year, according to the Institute of International Finance.

Unlike richer countries that can afford to pour money into their economies, African governments need to take on more expensive debt to deal with the economic fallout from the pandemic.

“The cost of servicing the debt, and the debt overhang, will make a recovery difficult,” said Liberia’s former minister of public works and senior fellow at the Centre for Global Development, Gyude Moore.

The Group of 20 leading economies’ debt-relief initiative, aimed at freeing up funds for poor nations, is moving slowly. Since its launch in April, 13 of the 73 eligible countries have been granted a suspension, and multilateral lenders and private creditors have been hesitant to participate.

Without help, many countries spending more to tackle the pandemic that epidemiologists say has yet to peak in Africa may be forced into default.

That could deter fresh investment and financing, jeopardising the World Bank’s projection for a rebound to 3.1% growth next year.

Economies with diversified industries and sources of capital will bounce back quicker than those reliant on one sector, said Indigo Ellis, head of Africa research at Verisk Maplecroft.

If oil prices remain low, debt costs in Nigeria, the continent’s top crude producer, could consume 96% of government income this year, according to a report by Maplecroft. Interest payments for Angola, the No 2 producer, could eat up all revenue in 2020, the International Monetary Fund said in June last year.

“Perhaps this crisis is going to be a wake-up call for policymakers across the continent to make steep changes in their efforts to transform economies,” said Dirk Willem te Velde, a research fellow with the Overseas Development Institute. – Bloomberg