Amid falling commodity prices, recession and now COVID-19, Africa is in serious trouble as the debt burden increases. Zambia is on the verge of defaulting on its foreign debt as the so-called grace period expires.
Almost no one would want to accept the post of Angola’s finance minister, Vera Daves. By the end of this year, the country’s huge amount is expected to grow to more than 120% of gross domestic product (GDP).
Even in normal times, without the coronavirus pandemic, it is a major challenge.
“Our priority is to survive, save as many lives as possible and prevent the health care system from collapsing. Then we want to reach a bearable debt level,” Daves said in October.
One step has been taken, however: donors have pledged to relieve Angola of € 5.3 billion ($ 6.3 billion) in debt over the next few years. But this relief does not mean that Africa’s fifth largest economy is still difficult.
According to the International Monetary Fund (IMF), African states need almost € 410 billion to pay off all foreign debt owed by 2023.
No money for schools and hospitals
Nobody wants to imagine what is happening, warns Jürgen Kaiser of the development policy network erlassjahr.de. “States will stop meeting basic needs: security, education, health care,” Kaiser told DW, adding that “many people no longer see a future in their homelands.”
But even now, some countries are feeling the pinch because of the pressure to pay off debt.
Zambia is an example of this – the country in southern Africa is on the verge of defaulting on its foreign debt after paying no more than $ 40 million last month. A grace period will expire on Friday, making it the first country in Africa to default on its government debt since the COVID-19 pandemic.
Zambia has already struggled to reduce its $ 12 billion foreign debt burden, but it is not the only African country in this predicament. Mozambique has also slipped into the debt crisis due to billions of dollars in corruption scandals. “If we were to pay our debts, the situation would be difficult,” Adriano Nuvunga of the civil network FMO in Mozambique told DW.
“Because we need funds to support the poorest of the poor. Since the coronavirus started, they have not received support at all,” Nuvunga said.
While Mozambicans have to pay for billions stolen by few individuals in power, the burdens of other countries have grown for a variety of reasons: with relatively cheap money borrowed from the capital market or from China, they have financed massive infrastructure projects, bridges and railways.
COVID-19 pandemic exacerbates situation
The rich-in-natural resource countries had hoped to repay the loans by selling minerals, but then came coronavirus. “We have an important factor affecting countries such as Angola, Gabon or the Republic of Congo – it is the oil that drops prices,” said the expert Kaiser.
Gabonese Finance Minister Jean-Marie Ogandaga has boosted the country’s economy by up to 5%, with an oil price of $ 57 a barrel in the current budget. Now he expects the economy to grow by a maximum of 0.5% by 2020 – with an estimated oil price of $ 26 per barrel.
“If you suddenly get half your salary, you can not just continue to pay your debts as if nothing is wrong,” Ogandaga said in May.
The International Monetary Fund (IMF) and the World Bank have already promised to help some states. The 20 leading industrialized and emerging countries (G20) have allowed 73 heavily indebted countries to suspend payments until the end of June 2021.
But the initiative is only seen as a first step. “The moratorium helps a lot, but it only postpones payments. But some countries need significant debt relief,” World Bank chief David Malpass told DW in October.
Private donors have another problem: some African countries have borrowed large sums on the global financial markets in recent years. Now they have to pay off the loans with incredible effort.
Next year, about 18 billion euros will be repaid to private creditors. Unlike public donors, however, there is still no signal that private donors will reduce their debt. “I, as a taxpayer, do not want to accept exemptions so that Blackrock and Deutsche Bank can continue to make money,” Kaiser said.
To count on the G20
The hope now rests on the G20: the finance ministers of the most industrialized and emerging countries want to discuss debt relief for hard-hit countries at their meeting on 13 November.
However, according to media reports, a substantial demand must be met by experts and civil society: in the future, debt relief initiatives must include all donors – Western states, China and also private creditors. A possible candidate for such a procedure is Zambia – which already had to ask its creditors for an extension of the payment in October.
Leonel Matias in Maputo contributed to this report.