By Jacques du Preez
Analysis in brief: Africa has a long standing history of debt, the causes of which can be traced back to its pre-independence years. Although the onset of the global covid-19 pandemic has sent many African governments’ debt situations into a state of freefall, this crisis has been long in the making. The run-up to what is to become Africa’s present day debt plight began not long after the general African debt forgiveness of 2001 and is now recognised as a global economic issue. It has become clear that African economies need more than simply having their debts written off. The paper analyses how this unsustainable debt laid came to be and how the continent can navigate its own way out of the quagmire whilst still meeting its developmental objectives.
The Covid-19 pandemic is one of the largest crises to grip Africa in recent history, not merely in terms of mortality but in long lasting economic terms. Restrictions imposed by many African governments to contain the pandemic have hurt the continent’s already fragile economies more than the pandemic itself. Slumps in demand for vital commodities like oil have particularly left a sharp pinch in revenues, as the strain of government debts, which already stood at an unsustainable US$500 billion at the start of this year, threaten to plunge many African nations into bankruptcy. Unlike the last crisis of the late 1990’s which saw many African countries have all or most of their debts forgiven by their debtors, Africa cannot rely on the hope that its broad array of current creditors may collectively decide to grant blanket debt forgiveness. The continent therefore needs more than simply having its debt written off; African nations need to enhance their ability to foster local credit markets and improve the local legislative environment, in addition to changing their spending culture. Understanding the main drivers of economic indebtedness is also key to promoting the necessary political and fiscal reforms required to achieve sustainable growth. The run-up to what is to become Africa’s present day debt crisis began not long after the general African debt forgiveness of 2001 and was marked by three key events: 1) the uptake of a Eurobond debt market, 2) the influx of cheap and opaque Chinese credit, and 3) the commodity demand shocks in 2015 and currently in 2020.
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