IMF calls for concerted action on African debt

African countries are facing their worst funding difficulties in 20 years, warns the International Monetary Fund. It is calling for internationally coordinated action, similar to that by developed countries in the Group of Eight (G8) agreed in 2005 at the Gleneagles summit, Scotland. 

The crisis stems from waves of shocks, including the Covid pandemic and soaring food and other prices after Russia’s invasion of Ukraine. 

In April, the IMF released its regional economic outlook report for sub-Saharan Africa (SSA), titled The Big Funding Squeeze. This highlights shrinking donor spending and reduced lending and investment inflows both from the West and China, adding to African governments’ problems in raising funds on international capital markets and declining exchange rates for local currencies. 

The resulting inflation, including soaring food prices, is over 10% in half the African countries and hits the poor the hardest, 

Abebe Aemro Selassie, the IMF’s Africa Department Director says, “In terms of macroeconomic challenges, this is by far the most difficult period I think from the turn of the century.” 

No country has managed to raise funds through selling government bonds denominated in US dollars since Spring 2022. The dollar exchange rate has reached a 20-year high, increasing the burden of servicing debt denominated in dollars. On average, interest payments as a share of revenue have doubled in 10 years. 

Chad, Ethiopia, Ghana and Zambia have applied for debt relief using the Common Framework mechanism proposed by the Group of 20 (G20) leading economies. 

According to Selassie: “Since Russia’s invasion of Ukraine, the cost of living is more expensive, borrowing costs have increased and access to cheaper funding is dwindling.

“Coupled with a long-term decline in aid and a more recent fall in investment from partners, this means that there is less money to be spent on vital services like health, education, and infrastructure.”

The Fund estimates that economic growth across SSA will be 3.6% in 2023, down from 3.9% in 2022, the second year of lower growth, although growth should recover to 4.2% a year in 2024 when inflation will be lower and monetary policy should be relaxing again. 

The fastest-growing African economies are Senegal (growth is forecast at 8.3% in 2023 and 10.6% in 2024), Côte d’Ivoire (6.2% in 2023, 6.6% in 2024), Democratic Republic of the Congo (6.3% and 6.5%) and Ethiopia (6.1% and 6.4%).

By comparison, growth in South Africa is forecast to decelerate to only 0.1% in 2023 and 1.8% in 2024. Oil-exporter Nigeria is to grow by 3.2% and 3.0%. Equatorial Guinea’s economy is forecast to shrink by 1.8% in 2023 and by 8.2% in 2024.

The question is whether developed countries, fighting inflation and rising food and energy costs in their own patches, are inclined to make efforts such as in Gleneagles in 2005 to relieve Africa of some of the most onerous financial burdens, like heavy debt servicing. China has often come to the rescue as a lender of last resort but with an economic confrontation with the US looming and growth still sluggish, will it once again put its hands in its pockets for Africa?

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