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Sub-Saharan Africa faces an alarming debt burden that could hinder progress on sustainable development goals

Rising public debt in Africa, exacerbated by multiple shocks and limited fiscal space, poses a significant challenge to the region’s development. Half of the low-income countries in sub-Saharan Africa (SSA) are in debt distress or at high risk of it, as calls for international action, such as reforms to the international financial architecture on the agenda in 2025.

In a recent study, I show how the sustainable management of public debt has become more difficult for both low- and middle-income countries in SSA. As of February 2024, four out of six countries in the region experiencing debt distress are middle-income countries (Ghana, Zambia, the Republic of the Congo, and São Tomé and Príncipe). Debt distress indicates that a country is struggling to service its debt, evidenced by arrears—overdue payments—with either ongoing or impending debt restructuring.

Meanwhile, countries such as Kenya, Guinea-Bissau, Ethiopia, Cameroon, Gambia, Sierra Leone, and South Sudan are at high risk of debt distress. Furthermore, even those low-income SSA countries whose risk of debt distress had remained low before COVID-19—Tanzania, Rwanda, Senegal, Uganda and Madagascar—are now at moderate risk.

What is different this time?

Unlike the debt crisis of the 1980s, which was mainly driven by multilateral debt, the current public debt is mainly composed of commercial and bilateral debt, following increased access to international financial markets and China’s emergence as a significant bilateral creditor. Commercial debt is more costly and more subject to interest rate volatility than concessional multilateral debt. It can also be more difficult to renegotiate. 

Key drivers of public debt in SSA include large-scale financing of infrastructure development; maturity mismatches—for example, using short maturity instruments to fund development projects with long-term returns to investment; and multiple external shocks, including the COVID-19 pandemic, the Russian invasion of Ukraine, a rise in interest rates, and vulnerability to exchange rate volatility. 

Before the emergence of the COVID-19 pandemic in 2020, which sharply decreased economic growth and revenues, SSA’s public debts were already starting to bite. Following the adverse impact of the pandemic, SSA’s public debt-to-GDP ratio increased markedly in just one year, from an average of about 50% in 2019 to 57.1% (or 63.3% excluding Nigeria and South Africa) in 2020.   

The subsequent tightening of global financial conditions following interest rate hikes in advanced economies only worsened the situation. Average yields on sovereign bonds (national debts) increased substantially in 2022 and 2023; hence, the interest rate governments needed to pay to service their debt was also on the rise. African countries borrow at rates that are much higher than those of most high-income countries.

Additionally, most SSA countries’ domestic currencies depreciated notably following the strengthening of the US dollar and capital outflows, thereby increasing the costs of servicing foreign-denominated debts in domestic currency. As a result, SSA’s average public debt-to-GDP ratio increased further in 2023 to about 60.1%.

The debt burden is a threat to sustainable development

The combined impact of multiple shocks, tighter financial conditions, and exchange rate pressures has exacerbated debt accumulation and debt servicing costs at a time when fiscal space has diminished. SSA governments are now grappling with the high costs of debt servicing. Most countries are spending over 40% of domestic revenue on debt servicing, some as high as over 50%. For instance, in fiscal year 2022/2023, the Kenyan government spent 58.8% of its ordinary revenue to service its debt. 

This increased public debt burden not only threatens macroeconomic stability but also significantly constrains SSA’s prospects for achieving the Sustainable Development Goals (SDGs). The opportunity costs of such high debt payments are enormous. Funds used for debt servicing could instead support healthcare, education, and efforts to reduce high unemployment, poverty, and limited access to essential services like electricity and clean water.

What can be done?

While there are no quick fixes, sustainable multi-pronged domestic and international solutions are needed. Most countries in debt distress or at high risk of it require debt restructuring, a vital process to renegotiate their debts. 

To help countries restructure unsustainable debts, the G20 in collaboration with the Paris Club initiated a process called the Common Framework for Debt Treatment in November 2020. However, the framework, which operates on a case-by-case basis, has been rocked with coordination challenges, owing partly to the multiplicity of creditors whose interests are at stake. This has led to protracted negotiations for the very few countries (Chad, Ethiopia, Zambia, and Ghana) that have tried to use the facility. 

Timely and orderly debt restructuring is needed to foster confidence and encourage participation.  Moreover, despite the growing debt crisis, a comprehensive debt relief package is still missing. 

Fiscal consolidation—policy packages designed to reduce national fiscal deficits—has become inevitable, being one of the key conditionalities for countries on IMF lending programmes. But these contractionary policies are coming at a time when SSA economies must cope with multiple other challenges, such as climate change, high costs of living, high rates of unemployment, and faltering revenues. It would, therefore, be prudent to set realistic revenue targets and safeguard public spending towards priority sectors, including social protection and human capital development before embarking on fiscal consolidation.

Both domestic and international actors are needed for change

A lot more can be achieved if every cent is more efficiently utilized. In this regard, the leadership of SSA countries—politicians and technocrats—has a responsibility to promote better governance and accountability in national budgets and public debt. This could be reinforced through some form of fiscal rules, particularly considering the complexities of dealing with multiple creditors. Development partners should provide effective technical assistance where needed.

Access to concessional loans and grants by international financial institutions with less strings attached and more flexibility in aligning to countries’ needs and development priorities is equally crucial. Domestically, strategies such as broadening the tax base, digitalization, financial deepening, capital market development, and innovative public-private partnerships are viable options. 

Lastly, the intensifying calls for reforms to the international financial architecture must be addressed to ensure fair rules, given the deep-rooted inequities, biases, and inefficiencies of the current system.

The views expressed in this piece are those of the authors, and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors.