Coronavirus Aid: Spotlight On Africa's Debt Burden

Thursday April 16 2020

debt

 

By AFP

Several dozen African countries hit by the coronavirus crisis should benefit from a debt moratorium if initiatives announced by wealthier nations go through.

But the scale of relief may be somewhat less than may appear, experts caution.

Here is a backgrounder:

Africa's debt problem dates to the 1960s, when newly independent countries inherited liabilities from the colonial period and took on loans from the international community to build their economies.

"It was very feasible (then) because interest rates were near zero. But the problem was that African states took on debts at variable interest rates," said Togolese economist Kako Nubukpo.

These rates shot up in the late 1970s as a result of that decade's oil crisis, and indebted countries suddenly found themselves with an "unbearable" load, Nubukpo said.

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Bailouts from the World Bank and the International Monetary Fund (IMF) came at the price of so-called structural adjustment policies -- reforms to cut budgets and liberalise economies.

From the turn of the millennium, African countries turned to a new debt source, China, which swiftly became the continent's biggest single creditor, typically offering loans in exchange for infrastructure projects built by Chinese firms.

"We emerged from colonialism only to be immediately placed under the yoke of indebtedness," Cameroonian philosopher Achille Mbembe told AFP.

The Group of Seven, gathering the world's richest democracies, on Tuesday said they favoured a "time-bound suspension" -- a temporary halt -- on debt payments from the world's poorest countries, provided that the wider Group of 20 countries agreed.

That approval came on Wednesday.

According to French Finance Minister Bruno Le Maire, the moratorium will run for one year and apply to 76 nations, including 40 in sub-Saharan Africa.

The important fact is that this is not debt forgiveness, as some world leaders have urged, but simply a hiatus on repayment of the bill to official creditors.

It should free up around $20 billion that can be used to fight the coronavirus pandemic, according to Saudi Finance Minister Mohammed Al-Jadaan.

Africa's overall debts stand at around $365 billion, around a third of which is owed to China.
Much of this is owed to private lenders, who are not covered by the government-level announcement.

"Unlike what we saw in the 1980s, when debts were incurred with sovereign states, African debt today is also held by private investors, like investment funds," Nubukpo said.

"Announcing a debt moratorium, let alone debt forgiveness, doesn't seem as easy today as it did 20 or 30 years ago."

Debt relief for African countries has in the past typically been followed by a rebound in borrowing, sometimes to unsustainable levels in some countries.

This vicious cycle, say analysts, can often be ascribed to a corrupt elite, incompetence and dependence on commodities -- a sector notorious for volatile prices and low added value.

"We shouldn't lose sight of the issue of bad governance and graft which seeps through certain regimes on the continent," said Bakary Sambe, head of a Dakar-based think tank, the Timbuktu Institute.

Mbembe said China today played an important part in Africa's "debt system."

"China has set in place a capture economy, with debts that are virtually unpayable, in exchange for control over a range of rare natural resources," he said.

Mbembe called for scrapping debts where interest payments have exceeded the original loan, and said future borrowing should be determined by "democratic debate" involving the public.

"It's criminal that today's generation will be handing unpayable debts to future generations," he said.

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