Borrowing sounds good, if you want to tell yourself that you will be doing it all in the name of the development. It's surely needed, no point in isolation. But Thomas Sankara was right with his point of self-reliance, though not-so-ideal. There is a gnawing feeling that not enough is being raised about the dangers of this concept, which are now becoming more apparent than ever.
Africa’s increasing debt problem is becoming more worrying than ever. It is like the issue of public debt could be glorified in a manner without fully raising the perils of such. Even as Rex Tillerson, the former secretary of state of the US, warned African countries about the debt they were accumulating from China, it just sounded an ironical message. Considering America is China’s largest debtor, the message sounded ironical. But well, Tillerson may have made an attempt to ring some alarm bells into the issue of borrowing.
During a visit to Ethiopia late last year, IMF’s current chief Christine Lagarde warned African governments about an impending debt crisis. To illustrate the extent of how grave this could turn out, some have termed it the “ticking debt bomb”. One of the growing concerns that Lagarde made reference to was the issue of debt ratio in comparison to the GDP of a country, which she said it exceeded over 50% in Sub-Saharan Africa. She pretty much raised a worry that the debt crisis could explode this year taking into effect what happens in the creditor countries. Issues such as tighter and stringent monetary policies could make it hard for African countries.
The problem of mounting debt is one area that will need a concerted effort if it is to be tackled successfully. The issue of falling commodity prices will only make it hard for African governments to bear the debts. And well, some countries just have a penchant for over-spending; the initial purposes of the debt are neglected. It won’t help any matters. IMF Africa director Abebe Selassie expressed his views over the issue with Quartz Africa.
“What we are pointing to is the need to push back against this increase in debt,” said Selassie. It is clear that the fight must be won, with a sense of urgency. The whole point will be how governments borrow and spend the money wisely. What’s really needed now is to try and capture the return on investments by those governments that invested in roads, electricity, water supply, etcetera,” he said. It is not a secret that most of African countries have an over-reliance on commodities, and the IMF is worried that they are not broadening tax-bases enough in order to diversify their economies and wean themselves from this over-reliance on commodities. And even electricity needs to be levied at necessary levels so as to repay the debts accrued from such investments.
The debt crisis may actually be more dangerous than we can imagine. Concern really needs to be more express now and collective effort instituted. Brookings is of the argument that alarm bells will start ringing loud enough when one of Africa’s five biggest economies - Nigeria, South Africa, Angola, Ethiopia, or Kenya – becomes seriously mired in debt. Brookings analyses debt dynamics by looking at the difference between the debt interest rate and economic growth.
What we have is a situation where borrowing is far exceeding economic growth, and we really need to be worried.
Below are the countries in Africa burdened with heavy debt loads (statistics based on public debt as percentage of GDP):
1. Cape Verde - 129.7
2. The Gambia - 120.2
3. Rep of Congo - 117.7
4. Mozambique - 112
5. Mauritania - 98.7
6. Sao Tome - 94
7. Togo - 77.3
8. Zimbabwe - 69.7
9. Ghana - 68.1
10. Sudan - 66.5
Statistics based on Brookings tables.