A conversation on Africa’s debt

On Friday, January 28, the Brookings Africa Growth Initiative, in partnership with the Centre for the Study of the Economies of Africa (CSEA), convened a conversation with leading experts from foundations, multilateral institutions, nongovernmental organizations, and the private sector to discuss the issue of Africa’s debt.

Major themes of the discussion included the viability of debt swaps for development and carbon pricing as financing instruments to undo the pernicious effects of the pandemic as well as discussions around the gendered impacts of the pandemic-related macroeconomic policies.

Participants made three presentations. The first explored the wide-ranging effects of the pandemic on debt sustainability. Debt levels and debt servicing have increased while revenues and exports have decreased, leading to pressure on balance of payments. Importantly, over the last 15 years, the composition of Africa’s debt has changed noticeably, with emerging market economies borrowing predominantly from private creditors and nontraditional bilateral creditors such as China.

In the second presentation, speakers proposed an outline for a paper exploring the potential for debt swaps for development in Nigeria. In the third presentation, contributors explored five case study countries (Ethiopia, Ghana, Kenya, Nigeria, and South Africa) and their particular financial vulnerabilities, including reliance on external borrowing, tax burden, recent growth in public debt, fiscal risks, monetary policy, credit ratings, and more.

The presenters argued that Africa’s heavyweights, Nigeria and South Africa, were better positioned to weather their debt crises than the other three countries (who for various reasons rely on external financing), but nonetheless had financial vulnerabilities that required attention. Nigeria has exceptionally low tax revenue mobilization and South Africa’s debt service-to-revenue ratio poses risks for a liquidity crisis.

Following each presentation, participants reflected on the findings reported, shared their thoughts on the particular challenges facing these and similar African economies, and debated policy mechanisms and steps forward to manage debt—both domestic and foreign.

Agreement was over the need to develop a concept note and expand the number of case study countries. These case studies would form the basis for a compendium on the state of play of Africa’s debt in the aftermath of the COVID-19 pandemic.