Africa’s total external debt stock has risen to unprecedented levels hitting a whopping US$656 billion in 2022 painting a gloomy picture of debt sustainability for the continent.
This was revealed in the 2024 Unpacking Africa’s Debt Report compiled by the United Nations Office of the Special Adviser on Africa.
Although this huge external debt stock represents just 28% of the continent’s Gross Domestic Product (GDP), many individual countries are holding very significant shares of this debt exceeding the World Bank and International Monetary Fund (IMF) approved thresholds.
“Africa’s external debt has grown substantially during the last decade, reaching $656 billion in 2022, representing 28 percent of GDP,” portions of the report cited by The High Street Journal read.
The report notes that a Debt Sustainability Analysis (DSA) reveals that nine (9) African countries including Ghana are in debt distress as of 2023. Twelve (12) countries including Burundi, Cameroon, Ethiopia, Gambia etc are at high risk while seventeen (17) countries such as Burkina Faso, Cote-d’Ivoire, Mali Senegal, Togo among others are at moderate risk.
This implies that 38 out of the 54 countries on the African continent, representing a whopping 70% of the countries are grappling with debt sustainability challenges.
The continent’s debt, the report further notes grew significantly in the last decade due to combination factors such as slow economic growth, rising inflation, tightening global financing conditions, and volatile exchange rates.
“Relatively slow growth, an inflationary environment, tightening financing conditions, and exchange rate volatility, have heightened the risk of unsustainability. Debt servicing costs have grown faster than the rate at which African countries can generate export earnings. They are also higher than investments in areas that are critical for Africa to attain the SDGs,” the report further indicated.
This alarming debt overhang is a cause for concern to many countries as debt servicing and repayment costs are dwarfing socio-economic expenditures such as education, healthcare, poverty alleviation programmes, security, and infrastructure. This high debt, some analysts believe, is partly the cause of the failure of many African countries to attain the United Nation’s Sustainable Development Goals (SDGs) due to limited fiscal space.
Ghana’s debt challenges mirror the trend on the continent as the country has been described as debt distressed. The continent’s unprecedented debt overhang also has far-reaching implications for Ghana, worsening the already bad state of the economy.
With a continent-wide deteriorated creditworthiness, Ghana could be impacted by the rising global interest rates to African countries. The country is likely to face higher interest rates and stricter lending conditions limiting Ghana’s ability to borrow at favourable terms.
For a lower middle-income country that heavily relies on external funding for major projects, this development spells trouble as new loans are likely to cost more and further strain public finances.
The debt development on the continent could also mean Ghana may have to resort to austerity measures such as public expenditure cuts, higher taxes, and reforms to free up fiscal space for development since new loans may come with high costs.
But some analysts are optimistic that despite the challenges there is room for hope. Ghana can take inspiration from the growing call for innovative debt solutions such as debt-for-climate swaps, concessional loans, or agreements that link debt repayment to sustainable development outcomes.
By aligning debt with national development goals, Ghana could chart a path toward recovery while addressing critical challenges like climate change and social inequality.
