Africa’s Growing Debt Issues – By: . .
By Emmanuel Yachim
Debt is part of human life and existence. Debt is as old as man, and so are defaulters.
According to the International Monetary Fund (IMF) database, there is only one country in the world that is debt-free. This country is the Macau Special Administrative Region of Greater China.
Seven of the world’s major economies rank among the 20 countries with the highest external debts. These are the United States ($28.9 trillion), Russia ($280.1 billion), the United Kingdom ($2 trillion), France ($3 trillion) , Germany (5,900 billion euros), Japan (12,200 billion dollars) and China (7,000 billion dollars). billions of dollars).
African countries are not left out. Many of them collect loans from the World Bank, IMF, China and other countries around the world to finance various development projects, but the trend has become a source of great concern for analysts.
Analysts’ concern stems from the growing indebtedness of many countries on the continent.
According to the Economic Times, Africa’s debt to China exceeded $140 billion in September 2021.
Meanwhile, the IMF estimates that up to $285 billion in additional financing would be needed from 2021 to 2025 by African countries to step up spending in response to the coronavirus pandemic.
Over the past two decades, China has emerged as a major global lender, with outstanding claims now exceeding more than 5% of global gross domestic product (GDP).
In total, the Chinese state and its affiliates have lent about $1.5 trillion in direct loans and trade credits to more than 150 countries around the world.
This has made China the largest official creditor in the world, surpassing traditional official lenders such as the World Bank, the International Monetary Fund (IMF) or all creditor governments of the Organization for Economic Co-operation and Development (OECD) reunited.
According to the IMF, more than 20 low-income African countries are in debt distress or at risk of debt distress between September and December 2021.
The debt of low- and middle-income countries in sub-Saharan Africa has increased to a record $702 billion in 2020, according to a new World Bank report published on October 11, 2021. It is the most debt high in the region in a decade.
In 2010, sub-Saharan Africa’s debt stood at around $305 billion.
China is currently one of the top bilateral lenders to 32 African countries and the continent’s top lender as a whole.
In 2020, China’s most indebted African countries were Angola ($25 billion), Ethiopia ($13.5 billion), Zambia ($7.4 billion), Republic of Congo ($7.3 billion) and Sudan ($6.4 billion).
But the debts triggered a repayment crisis. China holds about 72% of Kenya’s external debt, which stands at $50 billion.
Over the next few years, Kenya is expected to pay $60 billion to China Exim Bank alone, sources said.
Mombasa port could be lost if Kenya fails to repay loan, says to Kenya’s own Auditor General.
National Treasury Cabinet Secretary Ukur Yatani has denied that Kenya offered the strategic national asset as collateral for the $3.2 billion loan from the Export-Import Bank of China (Exim China) for finance its Standard Gauge Railway (SGR) project. .
The Ugandan government has also had to postpone construction of the ‘Kampala-Entebbe highway’ after political opposition raised concerns about the country’s rising debt profile.
In Djibouti, China has provided nearly $1.4 billion, or 75% of the country’s GDP, according to reports.
Between 2010 and 2015, Nigeria’s debt to China increased by 136% from $1.4 billion to $3.3 billion and the country had to spend $195 million in 2020 to repay its debt to China .
Meanwhile, credit rating agency Agusto & Co, in its January 2022 edition of the economic newsletter, said that Nigeria’s external debt could rise from around N15 trillion to N18 trillion. if the Central Bank of Nigeria (CBN) devalued the naira by around 20%.
The company added that Nigeria has adopted a hawkish foreign exchange policy since 2015 and has been elevated from 2020 to date.
Again, Nigeria must repay $400 million of a loan from China for the Nigerian National Information and Communications Technology Infrastructure Phase – II Project, signed in 2018.
Former Chairman of the Senate Committee on Foreign and Local Loans, Senator Shehu Sani, said loans were indispensable in the 21st century economic development but “we should only borrow when necessary.
“It is impossible to say that you want to develop your country without borrowing, but as a developing country, it is necessary to prioritize borrowing,” he said.
Meanwhile, DMO Managing Director Ms Patience Oniha criticized the IMF report and a similar report by the leading pan-African credit rating agency, Agusto & Co.
She said both reports failed to take into account the challenges faced by Nigeria in recent times.
“There were challenges such as two recessions, a sharp drop in income and security issues.
“More so, the analyzes fail to recognize the infrastructure improvements that have been achieved through the borrowing, as well as the aggressive measures taken by the government to raise revenues,” she said.
The DMO said Nigeria’s loans to China amounted to $3.59 billion (or 9.4%) of the country’s total outstanding external debt.
He also clarified that the loans were largely concessional, as no domestic assets were tagged as collateral.
“Before any foreign borrowing is contracted, including the issuance of Eurobonds, they are approved by the Federal Executive Council and, subsequently, by the National Assembly.
Meanwhile, Chinese Foreign Minister Wang Yi dismissed claims that Beijing was luring African countries into a debt trap by offering them massive loans, dismissing the idea as a “narrative” pushed by opponents. of poverty reduction.
Wang, who spoke ahead of a tour of Beijing-funded projects in Kenya in January, said China’s huge loans to Africa were “mutually beneficial” and not a strategy to obtain diplomatic and trade concessions.
“It’s just not a fact. These are speculations played by some with ulterior motives,” he told reporters in the Kenyan port city of Mombasa.
Available records showed that at least 18 African countries have renegotiated their debts, while 12 others are in talks with China to restrict loans of around $28 billion.