Tougher times ahead as appetite for loans pushes 40% of African countries into debt crisis

AFRICA – The Managing Director of the International Monetary Fund, Kristalina Georgieva, has said that 40 percent of African countries are in debt distress.

Africa’s public debt has not yet reached the proportions that triggered the Highly Indebted Poor Country (HIPC) initiative, the concerns regarding Africa’s present debt is the fact that it has risen sharply in a very short space of time more than doubling what it was five years ago.

Another worrying trend is, unlike previously when most of the debt was owed to multilateral institutions like the World Bank and IMF and bilateral creditors, today, a considerable share of African debt is held by private banks and bondholders.

The number of countries already unable to service their debts has doubled in the past year to eight, and the IMF is urging African countries to raise taxes to provide more scope for paying interest something which will hurt the citizens of these countries.

The 49th African Economic Research Consortium (AERC) noted that countries like Chad, South Sudan, the Republic of Congo and Mozambique have moved into “debt distress,” further painting a gloomier picture for the continent.

According to AERC, most countries in sub-Saharan Africa are being hit because they had borrowed in foreign currencies and are finding debt hard to finance after a significant depreciation.

Sub-Saharan governments have issued over US$80 billion in dollar bonds to investors hungry for yield and this has pushed the debts of these countries into levels that are no longer unsustainable.

There have also been gloomier syndicated loans and bilateral debts, many to China, which has over US$60 billion on offer, and tied to big construction projects.

Georgieva while commenting on the rising debt, described Africa as a continent of opportunities and one with many troubles, noting that the focus was to help countries have sound macro-economic policies, improve the investment climate and show it to the rest of the world.

 She also noted that “One has to remember that debt on its own is not bad.  It is bad when it goes with the wrong things and when it goes with the speed that the economy cannot handle.”

Georgieva said countries that were experiencing higher growth rate had done so by borrowing for investments that could generate growth and eliminating red tape for local and foreign investors.

She concluded by revealing that the IMF would hold a ‘concentrated’ meeting with African leaders in December to discuss debt sustainability.

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