African countries plead for debt relief

Africa is grappling with an unprecedented debt crisis — its most severe in 80 years.

African nations owed about $685bn to external creditors in 2023, according to global group One Data Analysis. This year they will pay close to $89bn in external debt service alone, with 20 low-income countries at risk of debt distress. More than half of Africa’s 1.3-billion people live in countries that spend more on interest payments than on health, education and climate-related issues combined.

Together with other global events, the pandemic, the rapid increase of grain prices due to Russia’s war with Ukraine and high inflation in Africa over the past few years have heightened financial vulnerabilities. Many nations have been pushed to the brink of economic instability and face taking on even more debt.

In 2020, Zambia became the first African nation to default; it was followed by Ghana. Zambia’s bilateral creditors have on several occasions rejected a plan to restructure its $3bn in eurobonds — a debt instrument issued in a currency other than that of the home country or market.

In 2023, Ethiopia became the third African country to default. It was supposed to pay $33m to holders of the country’s only international government bond. Nigeria, Egypt, Kenya and Morocco also grapple with precarious debt challenges.

At the height of apartheid in South Africa, the National Party government faced a worsening financial situation due to recession and international sanctions. By 1984, the country’s debt was $24.3bn, representing a debt-to-GDP ratio of 46%, up from 20% just four years earlier. (South Africa’s foreign debt now sits at 41% of GDP.)

In the past, most of Africa’s external debt was owed to major multilateral institutions such as the International Monetary Fund (IMF) and the World Bank. Now China and several other private creditors are also in the mix, making it more difficult to engage with debtors. In the case of Zambia, it’s evident that the involvement of China and private creditors has complicated debtor engagement and negotiations for relief and restructuring.

South Africa, supported by other African governments, placed the issue on the agenda for its year-long G20 presidency. It was against this backdrop that several former heads of state met President Cyril Ramaphosa in Cape Town to call for comprehensive debt relief for the continent.

The former heads of state have launched an African leaders’ debt relief initiative, led by former Nigerian president Olusegun Obasanjo, Senegal’s Macky Sall, Tanzania’s Jakaya Kikwete, former Ethiopian prime minister Hailemariam Desalegn, Malawi’s Joyce Banda, former president of Mauritius Ameenah Gurib-Fakim and former Nigerian vice-president Yemi Osinbajo.

At the opening of the G20 finance ministers and central bank governors’ meeting in Cape Town, Ramaphosa called for a “fresh approach to tackle Africa’s persistent debt crisis”. African nations continue to face disproportionate costs to service their debt, Ramaphosa told the gathering, despite many advanced economies carrying higher burdens. At a briefing Obasanjo told the FM that the debt crisis has “[strangled] development in Africa”.

He said: “The money that should have gone into essential areas of human welfare and human development, education, health and nutrition is given to pay the debt that seems to be interminable. And we believe very strongly that if we can get debt relief, which is not charity, it will augur well for countries and creditors.”

The African leaders say there is a need for “bold and urgent action on a comprehensive plan for debt relief of Africa and other developing countries suffering under an excessive debt burden”.

Gurib-Fakim says the world has tackled such a plan before, along with significant capital inflows into Europe through the US-backed Marshall Plan. Germany also received huge debt relief after World War 2 through the London Debt Agreement in 1952.

In 1996 the IMF and World Bank launched the Highly Indebted Poor Countries (HIPC) initiative, which aimed to ensure that no low-income country would face unmanageable debt; at the time 39 African countries participated. The plan provided debt relief and low-interest loans to cancel or reduce external debt repayments. According to a World Bank report at the time, “the initiative has successfully alleviated more than $100bn of debt for 37 participating countries, fostering a path towards economic recovery and development”.

[This] is not charity. It is something that we need to do because it must be done

—  Macky Sall

This time around, the world is a different place, with severe geopolitical challenges and cutbacks in development aid. Gurib-Fakim says this is compounded by the escalating impact of climate change, which has “devastated some economies and deepened financial instability”.

The former heads of state have proposed a two-pronged approach that includes a predictable, fair and inclusive debt restructuring process involving all creditors — private, bilateral and multilateral. Gurib-Fakim says they want a lower cost of capital for all developing countries, including credit enhancements through multilateral institutions to unlock affordable financing. They also want debt suspension mechanisms to create space for development.

Sall tells the FM that this “is not charity. It is something that we need to do because it must be done. And we are making a plea especially to the G20 [countries], because they represent over 85% of the world economy. We need to translate this debt into funds that can help alleviate the critical sectors of health and education.”

However, former Kenyan central bank governor Patrick Njoroge said that while the former African heads of state will lobby governments and other advocacy work will continue, it will be up to individual countries to start engaging creditors.

“At the end of the day, the discussion will be crystallised and in order to move ahead on ​debt relief, it has to be done between the creditors and the debtors. The countries themselves will need to have that conversation, as it happened in the context of ​HIPC,” said Njoroge.

In some cases, this is already happening. The island nation of Cape Verde struck a debt-for-climate-fund deal with Portugal last year, with Portugal agreeing to write off an initial $13m. Ghana has also won a moratorium on debt payments with official creditors until May 2026.

The African leaders are in unison that the debt crisis undermines efforts towards sustainable development and poverty alleviation. They say addressing debt requires African leaders and international partners to devise innovative funding solutions that promote fiscal resilience and economic recovery.

The former leaders had a closed-door meeting with Ramaphosa, who supports the initiative and has promised South Africa’s G20 presidency will take up the issue in its engagement with other nations.

But there will be little appetite for a debt write-off from institutions and countries, including China. And with ever-changing geopolitical instability, financial turmoil and international partners retreating from Africa, the former heads of state say they know it is going to be an uphill battle.