Record commodity prices and low global interest rates have encouraged African nations to borrow like they did in the 1990s, but some are now struggling to pay up as their revenue slows along with economic growth.
Government debt as a percentage of GDP in sub-Saharan Africa has doubled in the past decade, heading back toward the level it reached in 2000.
IMF managing director Kristalina Georgieva last month said that this was a cause for concern.
Of the 54 countries on the continent, 20 are near or at distressed levels, according to the IMF, which means they face difficulties honoring their obligations.
African governments have raised about US$26 billion in international markets this year, from close to US$30 billion last year, as they took advantage of investors’ thirst for returns in a world awash with negative yields.
Volatile currencies across the continent increase the risks of borrowing in hard currency and the rising cost of serving debt could crowd out other expenditure in a region that is home to more than half of the world’s poor people.
“The conditions are ripe for a much higher level of debt distress,” Sonja Gibbs, head of sustainable finance at the Institute of International Finance, said by telephone. “Whatever triggers the next crisis, when it happens, you are likely to see a high degree of contagion risk because investors have been moving into higher yielding assets.”
Still, the continent is far from a debt crisis, its biggest multilateral lender said.
“Some individual countries are getting to higher levels in terms of debt-to-GDP ratios, that’s the concern,” African Development Bank president Akinwumi Adesina said in an interview.
The debt-to-GDP ratio of Africa is still “well within acceptable limits,” he said.
More reliance on commercial bonds has raised servicing costs, diverting funds that could be spent on new roads or schools. Nigeria, the continent’s top oil producer, spends about the same amount every year on repaying debt as it does on infrastructure.
Countries such as South Africa, the continent’s most industrialized economy, are raising debt levels and this year had its biggest eurobond issuance yet to help plug a widening budget deficit as economic growth slows, and public-sector wages and bailouts for state companies sap resources.
External debt paymentsnow eat up on average about 13 percent of the revenue of African governments from 4.7 percent in 2010, data compiled by the UK-based Jubilee Debt Campaign showed.
Overspending and crashing commodity prices in the 1990s led to a debt crisis that prompted multilateral lenders and rich nations to write off the obligations of dozens of African countries in 2005. This time around a debt pardon might not be that easy.
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