Angola, Côte d’Ivoire, Senegal…countries where debt has exploded

In depth
This article is part of the dossier: Africa’s new debt deals

By Joël Té-Léssia Assoko
Posted on Wednesday, 15 June 2022 11:38

The level of external debt has risen sharply since 2015, but not all countries are in the same boat. Their capacity to cope with the challenge differs greatly. We look into this situation in part 4 of our series.

This is part 4 of a 5-part series

The resurgence of a financial crisis in sub-Saharan Africa, similar to those of the 1990s and 2000s, seems unlikely – although not excluded. However, there is no doubt that the level of debt owed by countries in the region has increased dramatically over the past half-dozen years. Between 2015 and 2020, the public external debt stock of sub-Saharan countries increased by 67.5% to $454bn, according to the World Bank.

This development has not failed to alert development economists, including Brahima Sangafowa Coulibaly, head of the Africa Growth Initiative at the Brookings Institution (an American think-tank). “Due to the rapid increase in the debt burden in recent years, one-third of sub-Saharan African countries are either in debt distress or at high risk of debt distress, including the majority of countries that benefitted from debt relief in the 1990s,” he said in April 2019, almost a year before the outbreak of the Covid-19 pandemic, with its disastrous humanitarian and economic effects.

Coulibaly reminded us that a note on these issues, produced by his institution and communicated to the G20 authorities ahead of their June 2019 meeting in Japan, served as a basis for discussions that led them to approve the Debt Service Suspension Initiative (DSSI) the following year. Some 30 sub-Saharan countries were admitted to the programme. Others, such as Zimbabwe, under sanctions, did not participate; some, such as Benin, chose not to participate in order to preserve the quality of their credit rating.

Debt growth of more than 100% in five years

In detail, however, the increase in the level of external debt (public or state-guaranteed) is far from uniform across the continent. Both the cost and the capacity of countries to cope with it vary greatly. An analysis of financial indicators for 36 sub-Saharan countries shows that in 12 of them, public external debt has doubled in the space of five years, rising from a cumulative stock of $89bn at the end of 2015 to $191bn at the end of 2020.

In absolute terms, the largest increases are in Angola (+$25.3bn in additional public debt between 2015 and 2020); Kenya (+$21.67bn); and Nigeria (+$20.8bn). Three French-speaking countries are in the top 10: Côte d'Ivoire, where debt increased by 138% to $22bn; Senegal (+155% to $17.2bn); and Cameroon (+94% to $15.3bn).

The low mobilisation of local and fiscal resources explains this continued recourse to external debt

In many cases, this increase can be explained by the financing of these countries' infrastructure needs, while multilateral development banks cover only a marginal share of the needs of African states: around 3% of investments between 2012 and 2016, compared to 15% provided by Chinese financing and more than 40% paid for by African governments, according to the Brookings Institution. The low mobilisation of local and fiscal resources also explains this continued recourse to external debt.

Moreover, in several countries, this increase in public investment has been accompanied by a clear increase in foreign direct investment. In Côte d'Ivoire, for example, the stock of foreign direct investment rose from $9.95bn in 2018 to $12.24bn in 2020, according to a study by the French bank Crédit Agricole.

An increase in the cost of debt

The increase in public debt has been accompanied by a rise in its cost, due in part to the higher proportion of private lenders in the pool of these countries’ creditors, which have multiplied debt issues on international markets. Moreover, Coulibaly says, “one-third of the debt of low-income countries is issued not at fixed rates but at variable interest rates”. This proportion was only 15% during the period 1990-2015, according to his estimates. In addition to the dollar-exchange-rate risks faced by these countries, there are also interest-rate risks.

Indeed, in several countries in the region, the annual cost of servicing debt has risen disproportionately compared to the evolution of the debt stock. For example, according to our calculations, this cost has increased by 355% in the case of Côte d'Ivoire: i.e. a two and a half times increase in the public external debt stock, from $420m in 2015 to $1.9bn in 2020. In the case of Senegal, this increase is proportionally even greater (+423% to $1.4bn).

The cost of this debt should, however, be put into perspective by taking into account the state's capacity to mobilise resources to service it, particularly its primary budget balance (excluding debt repayment). In the case of Ghana, for example, according to the IMF, the primary budget deficit will reach -9.3% of GDP, excluding repayment of external debt in 2020, compared with -4.3% in Senegal and -3.7% in Côte d'Ivoire. Angola had a surplus of 4.9%, while Congo-Brazzaville had a balanced primary budget.

Comparison with security and health expenditures

Another approach is to compare the cost of servicing these claims with other major budget items. According to data compiled by the Stockholm International Peace Research Institute (SIPRI), in 2020, the combined defence expenditure of Mali, Niger and Burkina Faso was $1.2bn. By comparison, external debt servicing cost $600m - equivalent to half the amount of national security spending in these three Sahelian countries facing a jihadist threat.

In ten of the countries surveyed, external debt repayment is at least double defence spending. Even excluding the extreme cases of Ghana – which faces a debt crisis – Cape Verde, which invests little in defence, and Somalia, which has been undergoing civil war for 30 years, the proportion of the national budget devoted to external creditors remains significantly higher than than the defence ministry’s, in many countries facing serious security threats, such as Cameroon, where the ratio is doubled.

The importance of concessional debt

By way of comparison, the WHO estimates that current health spending – which excludes investment in buildings, equipment or vaccine stocks – reached $261m in Congo-Brazzaville in 2020, barely a fifth of the $1.1bn spent on debt service in the same year. On the other side of the river, in the DRC, such health spending was six and a half times the cost of debt service.

More than a third of the DRC's external debt is concessional, compared to less than 10% for Brazzaville

This is despite the fact that the debt levels of the two countries remain very close, at around $5bn (including Chinese debts) for Kinshasa and $7.33bn (including $2.5bn owed to Chinese actors) for Brazzaville. However, between 30% and 40% of the DRC's external public debt is made up of concessional debt, granted at reduced interest rates and with long repayment maturities. In the case of Brazzaville, in 2020, this level was below 10%.

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