Debt levels have increased as more sub-Saharan countries look towards borrowing. Zambia’s debt now equals its total GDP, while Kenya may be speeding towards its own financial crisis.
The debt-to-GDP ratio for 12 sub-Saharan African countries has significantly surpassed the International Monetary Fund’s (IMF) recommended threshold of 45% for low-middle income countries, raising alarm bells over the severity of Africa’s debt as the continent looks towards post-pandemic economic recovery.
South Africa, Guinea Bissau, Eritrea, Ghana, Togo, Sierra Leone, Gabon, Congo, Angola, Mozambique, Kenya and Zambia all have debt totalling more than 70% of their respective gross domestic products (GDPs), according to the most recent data from the IMF and the World Bank.
Part of the debt can be linked to an increased appetite for borrowing, with multiple governments insisting the money needs to be put towards improving pandemic response programs and strengthening economic reforms.
But not everyone agrees that this is a prudent move. Kenya-based financial expert Aly-Khan Satchu told DW that the “cumulative rate of borrowing [far exceeds] the capacity of these countries to absorb or spend wisely.”
“We are at a crunch,” he said. “COVID is the accelerator of the crunch, but the crunch has arrived.”
Zambian debt equals GDP
With its total public debt topping almost $27 billion (€24 billion), Zambia became the first pandemic-era African country to make the sovereign default list — the failure of a government to pay back its debt when due — at the end of 2020.
According to Zambian development analyst Charity Musamba, “Zambia’s debt stock is huge and can sweep the country’s entire resources envelope.”
“This is the situation we are already projecting for 2027 when one of our major loans comes to maturity,” she told DW.
Zambia’s foreign debt is widely spread across various states, banks and multilateral institutions, with at least $6 billion (€5.3 billion) owed to China.
The southern African country’s debt worries are likely to loom large over its much-desired post-pandemic economic recovery, which is being shouldered by President Hakainde Hichilema after just three months in office.
“We are in big trouble,” said Musamba. “The debt stock has reached a level where it is classified as a crisis and its consequences are already being felt.”
Kenya prepares for impending crisis
The debt burden shock being felt in southern Africa has also flowed up towards East African nations, with Kenya now in urgent talks to try and avoid its own imminent crisis.
Kenya’s current debt-to-GDP ratio currently stands at 70% — a total of $70.8 billion (€62.57 billion). Back in February, lawmakers raised the country’s debt ceiling of $82.30 billion (€72.73 billion) in preparation for upcoming difficult financial years.
Satchu insists Kenya’s debt issues do not come as a surprise.
“We have been in a tunnel, we have seen the light coming towards us,” he said. “We knew the train was coming and now the train has arrived.”
“We are likely to see restructuring of debt and the government resorting to austerity measures,” he added. “This means higher taxes, increased cost of living and — in the worst scenario — weaking of currencies.”
Last week, Kenya’s National Treasury uncharacteristically sounded the alarm over the country’s rate of borrowing, warning that it could follow in Zambia’s footsteps if steps weren’t taken.
Since coming to power in 2013, President Uhuru Kenyatta has prioritized the construction of infrastructure such as roads and railways, which has involved a significant amount of borrowing.
But some are still defending the president’s borrowing strategy. Wohoro Ndoho, the former head of debt at the Ministry of Finance, believes it has set the country up for better outside investment in the long term.
“The very reason that Kenya has accumulated a huge infrastructural asset base-funded by debt is the primary reason why the country has become a preferred destination for foreign investment,” he told DW.
However, Satchu stressed that many of the infrastructure projects are not as successful as they are made out to be.
“The biggest borrowing was of the construction of the standard-gauge railway line,” he said. “It was meant to go as far as Uganda but it has currently stopped at nowhere in some small village without a road. I don’t know how you call that investment sensible.”
Debt issues still ‘very secretive’
However, although the debt crises of several African states are well-documented, debt-related issues are still rarely brought up in public discourse.
According to Zambia’s Charity Musamba, this given the elite dominance over the subject.
“Issues of debt are very secretive,” she said. “Systems that are used by sub-Saharan countries are not transparent, not participatory and lack accountability.”
But — in Zambia at least — this trend appears to be changing, with an increasing number of Zambians demanding more involvement in their country’s debt matters.
“I am very much concerned about our debt, because when you have too much debt it affects service delivery,” Zambian citizen Loyd Mwakwa told DW. “I feel we should be consulted because it is a democracy and it is us, the tax payers, who are affected.”
DW also reached out to Kenyans who want to see more candid talks among their leaders on the debt issue.
“We need a team of people who can represent our voices so that we can have some level of participation,” said Saalim Onyango. “Without that, we are doomed to a level of indebtedness in our country.”
Edited by: Ineke Mules