Over the years, Africa, despite being a resource-rich continent, has struggled with high levels of debt, forcing governments to devote a large portion of their income to repayment while starving investment in infrastructure, education and health.
As a result, the economic development of African countries is hindered, and global competitiveness is reduced.
However, Africa’s journey to reduce its debt burden requires a comprehensive and strategic approach. A report titled the Play of Debt Burden countries in Africa published by Afreximbank, predicts a decline by the end of 2024.
It emphasizes the main consequences of high debt levels, especially its negative effects on economic growth.
The report emphasizes that for Africa to begin to experience debt reduction, the adoption of sound economic policies and fiscal discipline are essential. It also underscores the need for a diversified economy to ensure long-term sustainability.
The main focus of the report is the composition and structure of debt. This highlights that countries with high external debt or short-term liabilities are particularly vulnerable to economic shocks.
This underscores the need for a balanced debt management approach that considers both domestic and external factors.
It also emphasizes the important link between economic growth and debt sustainability. This suggests that strong economic growth can improve debt sustainability by increasing State revenues and reducing the debt-to-GDP ratio, while weak growth can increase debt challenges.
We all agree that high debt levels have a negative impact on investment, especially in the climate, as investors see significant public debt as a risk factor.
They also reduced foreign direct investment (FDI) inflows. Lower FDI further limits job creation and economic diversification, making it more challenging for countries to build a resilient economy.
In addition, debt service limits the government’s fiscal policy options, limiting its ability to respond to economic crises or invest in long-term growth strategies. This hinders innovation and adaptation to changing economic conditions.
High debt often forces governments to cut essential public services, including health care, education, and social welfare. This disproportionately affects vulnerable populations, increasing poverty and inequality as access to essential services declines.
This can also lead to inflationary pressures, especially when the government prints money to meet its obligations. This weakens the local currency, increases the cost of living, and further reduces household budgets. Inflation, in turn, reduces the purchasing power of individuals, creating a cycle of economic hardship.
The strain caused by high debt can also lead to social unrest and political instability.
Citizens frustrated with austerity measures and poor public services can lead to public frustration, further complicating government and debt management efforts.
Internationally, highly indebted countries are often highly dependent on external aid and may face conditions imposed by international financial institutions, which may undermine their sovereignty.
To address these challenges, the report offers several policy recommendations.
It advises countries to implement sound economic policies, improve governance, and implement structural reforms to improve economic resilience.
The report outlines strategies to address the debt challenge and promote sustainable growth. This includes implementing fiscal discipline, managing public spending efficiently, and prioritizing investments with high economic returns.
Strengthening governance and institutional frameworks is essential to improve transparency, reduce corruption, and ensure efficient use of resources. This builds public confidence and contributes to long-term stability.
Economic diversification is important to reduce vulnerability to external shocks. Many African countries depend on a narrow range of exports, making them vulnerable to global market fluctuations.
By developing various sectors—such as agriculture, manufacturing, and services—countries can create stable revenue streams and increase resilience.
Strengthening domestic revenue mobilization, increasing tax collection, and broadening the tax base are essential to service debt and finance development projects.
For countries with unsustainable debts, restructuring negotiations with creditors can provide relief by extending repayment periods, reducing interest rates, or negotiating partial debt forgiveness.
In addition, international support from organizations like the International Monetary Fund (IMF) and the World Bank can provide financial assistance, technical expertise, and policy advice to help manage debt and implement reforms.
Therefore, effective debt management, building resilience to external shocks, and promoting economic growth require transparency and strong governance structures.
African governments can achieve economic stability by investing in key industries, improving domestic tax mobilization, and debt restructuring where necessary.
Collaboration with international financial institutions will further support these efforts, helping countries overcome the complexities of debt management and achieve sustainable development for the benefit of their citizens.
The author is the Kenyan Ambassador to Belgium, the Mission to the European Union, the Organization of African and Pacific Caribbean States and the World Customs Organization.
