Is Africa’s debt a threat to needed infrastructure funds?

As export and tax revenue decline due to subdued global demand and domestic activity, the debt cost of the Sub Saharan Africa region is eating up a larger share of the income in a region that already spends less than any other region on infrastructure.

Is a rising debt bill in Africa wrestling away funds needed for infrastructure?

Africa’s rising debt bill may threaten post-virus recovery

After 25 years of uninterrupted economic growth, gross domestic product in sub-Saharan Africa could contract by 2.8% this year, according to the World Bank.

Nigeria, the continent’s largest economy, spent seven times more on debt than new bridges and highways in the first quarter. Ghana’s interest payments in the first four months of the year were the highest since at least 2016. All that contributes to sub-Saharan Africa’s external debt-service bill that’ll be $36.6 billion this year, according to the Institute of International Finance.

And unlike richer countries that can afford to pour money into their economies, African governments need to take on more expensive debt to deal with the economic fallout from the pandemic.

“The cost of servicing the debt, and the debt overhang, will make a recovery difficult,” Gyude Moore, Liberia’s former minister of public works and senior fellow at the Center for Global Development, said by email.

The Group of 20 leading economies’ debt-relief initiative aimed at freeing up funds for poor nations to deal with the pandemic is moving slowly. Since launching in April, 13 of the 73 eligible countries have been granted a suspension and multilateral lenders and private creditors have been hesitant to participate. Senegal’s government said Wednesday it’s started talks with bilateral creditors to delay about $156 million in payments this year, or about 14% of its external debt service.

Without help, many countries spending more to tackle the pandemic that epidemiologists say has yet to peak in Africa may be forced into default. That could deter fresh investment and financing, jeopardizing the World Bank’s projection for a rebound to 3.1% growth next year.

Economies with diversified industries and sources of capital will bounce back quicker than those reliant on one sector, said Indigo Ellis, head of Africa research at Verisk Maplecroft. If oil prices remain low, debt costs in Nigeria, the continent’s top crude producer, could consume 96% of government income this year, according to a report by Maplecroft. Interest payments for Angola, the No. 2 producer, could eat up all revenue in 2020, the International Monetary Fund said last June.

“Perhaps this crisis is going to be a wake-up call for policy makers across the continent to make steep changes in their efforts to transform economies,” said Dirk Willem te Velde, a research fellow with the Overseas Development Institute.

Social expenditure also loses out to rising debt costs. Government spending on public services in sub-Saharan Africa dropped by 15% between 2014 and 2018, according to the European Network on Debt and Development. In South Africa, debt-service costs will grow faster than any other spending category over the next three years and in Kenya and Ghana governments will spend more on debt than on infrastructure, health or education.

African governments have “shrinking fiscal space as revenues are falling,” said Adedeji Adeniran, a senior research fellow at the Abuja-based Centre for the Study of the Economies of Africa. “For countries with very high external debt which is maturing this year, the debt crisis will be immediate.”

Source: News 24