The issue of external debt among African countries is a major concern for governments, economists, and citizens. While the continent has experienced significant economic growth over the past two decades, the rise in external debt raises concerns about the sustainability of this growth. In 2023, the external debt of African countries reached alarming levels, sparking debates on debt management and its implications for the continent’s future development.

State of play of the external debt

According to data from the African Development Bank, African countries’ external debt reached about 1.12 trillion USD in 2022, up from 1.152 trillion USD in 2023. This upward trend is particularly pronounced in low- and middle-income countries, where external debt has doubled over the past decade. For 2024, Africa is expected to spend 163 billion USD on debt services, up significantly from 61 billion USD in 2010.

Distribution of debt by region

The distribution of external debt varies considerably from one region to another. According to the African Development Bank (AfDB) report, East Africa and West Africa are the most indebted regions. In East Africa, external debt has reached around 200 billion USD, while in West Africa, it amounts to about 250 billion USD. In contrast, North Africa and Central Africa have relatively lower levels of external debt, with 150 billion USD and 100 billion USD respectively.

Most indebted countries

In the fourth quarter of 2024, ten African countries were among the most heavily indebted in the International Monetary Fund (IMF), illustrating their continued fight against high debt levels. These debts highlight a strong reliance on external financing to ensure economic stability in times of crisis.

Egypt

With a 9.45 billion USD appeal to the IMF, Egypt is in first place. The country’s reliance on IMF financing highlights the challenges it faces in maintaining economic and fiscal stability.

Kenya

Kenya owes the IMF 3.02 billion USD. The country continues to fight economic reforms to boost growth while meeting its debt-related commitments.

Angola

With a debt of 2.99 billion USD, Angola ranks third. The country relies on IMF support to manage the impacts of oil cost changes and diversify its economy.

Ghana

Ghana, which owes 2.25 billion USD to the IMF, is focused on meeting its financial commitments. In particular, by implementing strategies to stabilize its currency and strengthen economic robustness.

Côte d’Ivoire

The IMF lent 2.19 billion USD to Côte d’Ivoire. The country’s financial policy aims to raise international capital to support its infrastructure and development initiatives.

DRC (Democratic Republic of Congo)

The amount of debt owed by the DRC to the IMF is 1.6 billion USD. These resources are crucial to addressing economic challenges in one of Africa’s largest and most resource-rich regions.

Ethiopia

Ethiopia owes the IMF 1.31 billion USD. The country is implementing economic reforms and revitalization initiatives, while addressing internal conflicts that influence its economic path.

South Africa

South Africa owes the IMF 1.14 billion USD. This is one component of broader efforts to recover from economic disruptions and achieve sustainable growth.

Cameroon

Cameroon, currently indebted at 1.13 billion USD, is demonstrating its continued commitment with the IMF to improve its fiscal position and support critical sectors.

Senegal

Senegal was last on the list with a debt of 1.11 billion USD to the IMF. The country’s goal is to harness these resources for development projects and ensure economic stability.

Causes of the Increase in Debt

Several factors explain the increase in external debt in Africa. First, the need to finance ambitious infrastructure projects has led many countries to borrow heavily. According to the AfDB, about 60% of infrastructure investments in Africa come from external financing. These projects, while essential for economic development, can lead to unsustainable debt levels if the returns on investment do not meet expectations.

Secondly, many African countries have had to borrow to cope with the economic consequences of the health crisis. Finally, fluctuations in interest rates and currencies also have a significant impact on external debt. Many African countries borrow in foreign currencies, exposing them to exchange rate risks. For example, a depreciation of the local currency can make debt repayment more expensive, thereby worsening the financial situation.

Consequences of External Debt

The increase in external debt has consequences for African economies. First, it limits governments’ ability to invest in essential sectors such as education, health, and rural development. According to the Organisation for Economic Co-operation and Development (OECD), nearly 20% of African countries’ budgets are devoted to debt repayment, which reduces resources available for other priorities.

Moreover, high debt can lead to a loss of investor confidence. Financial rating agencies, such as Moody’s and Standard & Poor’s, closely monitor countries’ debt levels. A downgrade in credit rating can make borrowing more expensive and limit access to financial markets.

Finally, the rise in external debt can also lead to social tensions. Populations may feel the effects of austerity measures implemented to reduce budget deficits, which can lead to protests and political instability.

Towards Sustainable Debt Management

In the face of this worrying situation, it is essential for African countries to adopt more sustainable debt management strategies. This can include:

• Renegotiating Loans: Countries should explore options to renegotiate their loans with creditors, especially in the context of the COVID-19 pandemic. Initiatives like the Common Framework for Debt Treatments supported by the G20 can offer temporary solutions.
• Diversifying Financing Sources: African countries should diversify their financing sources by exploring public-private partnerships, foreign direct investments, and local financing.
• Improving Transparency: Better transparency in debt management is essential to strengthen investor and citizen confidence. Governments should publish regular reports on the state of the debt and its use.
• Strengthening Institutional Capacities: Countries need to invest in strengthening the capacities of their financial institutions to better manage debt and assess associated risks.

Finding the Balance Between Borrowing and Sustainable Debt Levels

The external debt of African countries is a major challenge that requires urgent attention. As the continent aspires to sustainable and inclusive development, it is crucial to find a balance between borrowing to finance essential projects and the need to maintain sustainable debt levels.

By adopting more effective debt management strategies and enhancing transparency, African countries can work toward a future where debt does not become an obstacle to their development but rather a lever for economic growth.