The Geopolitics of Africa's Debt Crisis

Apr 28 , 2024
By Anne O. Krueger

Sub-Saharan Africa’s ongoing debt crisis severely threatens its economic stability. Ethiopia, Zambia, and Ghana have recently defaulted on their external debts, reflecting a broader trend of fiscal distress across the continent. In this commentary provided by Project Syndicate (PS), Anne O. Krueger, a senior re-search professor of International Economics at the Johns Hopkins University School of Advanced Inter-national Studies, argued that these defaults show the urgent need for comprehensive debt restructuring and economic reforms to avert further economic degradation and political instability.

The United States has a population of roughly 330 million, while all NATO countries combined have about 975 million. Adding NATO's major Asian-Pacific partners – Japan, South Korea, Australia, and New Zealand – brings the total to 1.3 billion. By contrast, Russia and China have about 1.6 billion people. The rest of the world, including India and much of Asia, Africa, the Middle East, and Latin America, is home to 5.3 billion people.

Despite representing less than 15pc of the world's population, NATO countries account for about 31pc of the world's GDP. Over time, however, the rest of the world's share of the global economy is expected to increase, and its geopolitical allegiance should not be taken for granted.

Africa, in particular, is expected to become a major contributor to global growth over the coming century. But first, the continent must overcome several daunting challenges. While its population is projected to grow from 1.4 billion today to 3.3 billion by 2075, economic growth has been sluggish, and many African countries are currently experiencing or at high risk of debt crises. Without robust growth, migration pressures will likely increase, exacerbating political instability and leading to widespread state failure.

Conversely, if African countries overcome their current challenges, their growing geopolitical importance could pose a significant threat to Western interests, especially as China and Russia expand their economic footprint across the continent. To be sure, the challenges vary from country to country. Despite its vast oil reserves, Nigeria, Africa's largest economy and most populous country, has a poverty rate of 38.9pc. Following its second currency devaluation in eight months, with inflation reaching 31.7pc in February, a cost-of-living crisis has driven many multinational companies to exit the country. South Africa, for its part, continues to suffer from an acute energy crisis, with rolling nationwide blackouts. The unemployment rate increased to 34.7pc in 2023, while annual GDP growth slowed to 0.1pc.

Egypt's growth has also slowed sharply, with inflation running at 36pc amid a protracted foreign-currency crisis exacerbated by the war between Israel and Hamas in Gaza and a subsequent drop in Suez Canal revenues. A recent eight billion dollar loan agreement with the International Monetary Fund (IMF) and a 35 billion dollar investment deal with the United Arab Emirates (UAE) could help stabilise the Egyptian economy. But, with its population growing by 1.4pc annually, Egypt's projected 2.8pc growth rate for 2024, even if met, is unlikely to be enough to reduce the country's 60pc poverty rate.

Meanwhile, sub-Saharan Africa's debt crisis shows no signs of abating. In December, Ethiopia became the third African country to default since 2020. Zambia, which defaulted on its external debt more than three years ago, reached a restructuring deal with private bondholders only recently, having secured an agreement with its official creditors in June 2023.

Ghana, which defaulted on its external debt in December 2022 amid soaring inflation and a rapid depreciation of its currency, has yet to reach a similar agreement with its private bondholders after the IMF rejected its proposed restructuring plan. Zimbabwe, grappling with runaway inflation triggered by unsustainable government spending, has recently introduced its third currency in a decade and is now seeking an IMF loan.

Several factors drive Africa's ongoing debt crisis: unsustainable debt due to underlying fiscal weaknesses, borrowing for unjustifiable and potentially reckless infrastructure investments, excessive regulation that impedes economic growth, and political pressure for increased social transfers.

The proliferation of civil conflicts is compounding these problems. Ethiopia, for example, experienced rapid growth for more than a decade before its civil war erupted in 2020, forcing the country to seek support from the IMF. Similarly, the ongoing civil war in Sudan has resulted in massive migration and warnings of impending famine.

To mitigate the debt crisis and resume imports of essential goods, policymakers must implement targeted reforms, supported by strategic debt restructuring and short-term financing. Otherwise, excessive spending will persist, and economic prospects will remain bleak. But, the resources and attention African countries currently require far exceed what the IMF and other international institutions can provide, and the mounting discontent over the continent's lack of economic progress is exacerbating political instability.

Tellingly, Africa has experienced at least 106 successful coups between 1950 and August 2023, with seven – in Chad, Mali, Sudan, Guinea, Burkina Faso, Gabon, and Niger – occurring since 2021. Heightened geopolitical tensions, particularly the escalating rivalry between the US and China, underscore the urgent need to tackle Africa's sovereign debt crisis and stimulate economic growth.

Historically, most African countries have relied on Western support, but this relationship is increasingly in doubt, as evidenced by the 2023 military coup in Niger. Following the coup, Niger's new junta terminated key military agreements with the US, which were crucial for tracking extremist activities. Russian forces entered the country in early April, leading experts to conclude that maintaining a US military presence there would be "difficult, if not impossible."

If low-income, heavily indebted African countries fail to achieve sustainable economic growth, poverty, hunger, and political instability will intensify, increasing the allure of Russian and Chinese overtures. Developed countries, especially the US and the European Union's members, should support the IMF and the World Bank in assisting African countries and promoting growth-enhancing reforms. Improved economic and political conditions in Africa will be essential to preserving the international order that countries like China and Russia seem determined to overturn.

PUBLISHED ON Apr 28,2024 [ VOL 25 , NO 1252]

Anne O. Krueger is a former World Bank chief economist and former first deputy managing director of the International Monetary Fund (IMF).

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