Revealing the Complexities of Sub-Saharan Africa’s Debt Burden

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Due to the global economic challenges following the COVID-19 pandemic, the combined debt stock of low- and middle-income countries increased by 5.6% from $8.6 trillion in 2020 to $9 trillion in 2021. The economic shock caused by the pandemic. However, the accumulation of debt is not evenly distributed across countries and regions. Some economies with pre-existing debt vulnerabilities have become even more fragile, while others have reduced external debt stocks. Indeed, country group and regional statistics mask deterioration in debt outlook at the individual country level.

Results are mixed at the regional level. South Asia, Latin America and the Caribbean, and East Asia and the Pacific (the latter largely due to China) saw accelerated debt accumulation in 2021 compared to the previous year. In contrast, sub-Saharan Africa and the Middle East and North Africa have seen their external debt accumulation rates decline, while Europe and Central Asia have contracted (mainly due to a decline in Turkey’s short-term debt).

Sub-Saharan Africa’s (SSA) debt accumulation rate has slowed from 5.6% in 2020 to 2% in 2021. However, a closer look reveals a number of countries in the region with increasing fiscal risks. SSA is home to most Debt Service Suspension Initiative (DSSI) eligible countries. In this context, eight of the nine countries already in debt crisis assessed in the IMF’s recent Debt Sustainability Analysis (DSA) are in the region.

The slowdown in external debt growth in SSA countries in 2021 is largely the result of a 6% decline in South Africa’s private debt. In fact, excluding South Africa, the region’s external debt outstanding increased by an average of 4.3% to $591 billion. Some countries’ external debt, such as Côte d’Ivoire and Senegal, increased by double digits in both 2020 and 2021 (15.4% and 23% respectively in 2021). Most SSA countries saw their external debt stocks increase in He 2021 than they did in 2020, but only a few countries saw their external debt stocks decrease.

The distribution and causes of debt accumulation within the region also vary widely. Zambia’s external debt fell by 15%, while the Republic of the Congo’s external debt increased by 28%. The rise in the latter was largely due to a reliance on private lending throughout 2021, with little change in external debt outstanding from official creditors, including both multilateral and bilateral creditors. yeah. Meanwhile, Burundi turned to bilateral borrowing, increasing its outstanding bilateral debt from her $3 billion to her $5 billion.

Such large disparities among distressed countries moderated the average change in debt accumulation. In fact, the average rate of change in the debt stock of countries in debt recession is lower than that of countries considered medium or high risk. Cumulative debt fell by 0.8% in countries with debt depression. This could essentially be related to a sharp rise in debt burdens and limited access to finance in 2021. Debt accumulation increased by 12.2% in medium-risk countries and 4.5% in high-risk countries. Averages therefore do not give a complete picture of the financial burden of SSA countries.

Similarly, in 2021, private unguaranteed (PNG) debt outstanding increased significantly in some countries, but overall borrowing from private creditors did not. Over the past decade, the private external debt of SSA countries has consistently exceeded their external debt to official creditors. Yet the increase in external debt is not reflected in the region’s overall PNG debt level. The region’s long-term PNG debt and public and publicly guaranteed (PPG) debt balances from private creditors remained largely unchanged during the 2020 and 2021 COVID-19 pandemic. bottom.[1]SSA countries rely on official creditors and increased borrowing by 12% in 2020 and 4% in 2021.

At the individual country level, some countries in the SSA region appear more vulnerable to further shocks, despite the illusion provided by regional averages. Indeed, Chad, Ethiopia, Zambia and Ghana have already called for debt settlement under a common framework. The deterioration in the debt outlook of the SSA countries is particularly alarming given the ongoing global economic challenges beyond 2022, exacerbated by the conflict in Ukraine. Under these circumstances, the debt outlook for SSA countries is likely to deteriorate further. Policymakers in the SSA region should focus on strengthening fiscal policy to better respond to a range of external shocks, but decisive international cooperation on the part of creditors remains important.

[1] It decreased by 0.2% in 2020 and increased by only 0.06% in 2021.

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