Although Africa has experienced notable growth performance since the mid-late 1990s, many countries were already facing socio-economic challenges due to an unfavorable global environment in the decade preceding the COVID-19 pandemic. In the past six decades alone, every global recession recorded a rise in global government debt, but particularly over the past decade many African countries have increased their public debt levels. Multiple and overlapping shocks such as the Covid-19 pandemic, the Russia-Ukraine war, extreme weather events, conflict and tightening of global financial conditions, are widening Africa’s development financing gap and elevating their debt vulnerabilities.
According to the latest list of LIC DSAs for PRGT Eligible Countries, 17 African low-income countries as at moderate risk of debt distress, 13 at high risk of debt distress and 8 (Republic of Congo, Malawi, Mozambique, Sao Tome and Principe, Somalia, Sudan, Zimbabwe and Zambia) are already in debt distress, as of 28 February 2023.Some of these countries will form part of the Peer learning workshop on Debt Management.
Ethiopia’s widening current account deficit and rising inflation has contributed to a serious problem of dwindling foreign exchange reserves that hurts efforts to service the dollar-denominated debt, and the country is seeking to restructure its debt from G20 Common Framework and China. Zambia, which became Africa’s first sovereign nation to default on a $42.5 million bond payment during the COVID-19 pandemic, formally requested to restructure its debt under the G20 Common Framework in February 2021 and continues its talks with other creditors. However, IMF Board approved SDR 978.2 million (about US$1.3 billion) 38-month ECF arrangement for Zambia to help restore macroeconomic stability and foster higher, more resilient, and more inclusive growth, in 2022. In North Africa, Sudan’s external debt is large compared to its GDP, much of this is owed to the IMF, World Bank and other governments, with the situation worsening as some creditors have suspended bilateral agreements.
As a country at high risk of debt distress, Sierra Leone’s elevated debt burden is limiting the government’s ability to ease a cost-of-living crisis that spurred deadly protests, with public debt standing at 76 percent of GDP. For South Africa, the government now projects gross debt to increase from 71.1 percent of GDP this year to a peak of 73.6 percent in FY26, before trending down in the longer term, and fiscal consolidation to mitigate the risks from high and rising government debt levels is imperative.
Debt management therefore represents a challenge for African countries as debt becomes a significant source of funding for their economic growth and development, however this provides an opportunity to effectively enact budgetary protection for various events more apparent in the foreseeable in the future. Efficient and effective debt management will allow debtor countries to take action to avoid the legacy of ‘too little, too late’ sovereign debt management and restructuring.
Objectives
The Macroeconomics and Governance Division (MGD) of ECA is hosting a peer learning workshop on debt on 3-6 April 2023 in Lusaka, Zambia.
The objective of this peer-learning workshop is to assist delegates from Sudan, Sierra Leone, Ethiopia, South Africa and Zambia to share information, experiences and best practices on debt management strategies, policies and operations to enable the implementation of viable debt management procedures and strategies in-country. During the study tour, the delegates are expected to:
- Share information by presenting the current state of debt in their countries and highlighting the key challenges hampering debt sustainability. A special focus should be provided on the types of loans (short- or long-term; domestic or foreign, private or public), borrowing requirements, interest and redemption payments on loans, overview of total government debt, composition of domestic debt by instrument and debt service costs.
- Discuss Debt Sustainability Analysis procedures and medium-term management strategies;
- Enhancing the capacity of public debt managers to evaluate the structure, dynamics, and risks of sovereign debt portfolios;
- Share knowledge and build capacity on various debt management strategies (and policies) as well as operational procedures for debt management;
- Understand the process and procedures required to approach International Organizations and lenders, such as the International Monetary Fund (IMF) and Paris Club, to request loans/credit;
- Acquire knowledge, skills and networks necessary to recognize the factors influencing a country's sovereign bond rating and the steps required to improve that rating; and
- Share knowledge of UN-wide tools on debt management and sustainability.
Expected outcomes
After the study tour, the government officials are expected to:
- Develop a roadmap on the implementation of the debt management approaches/ techniques and policies that are suited to their needs.
ECA will develop knowledge products as determined by needs from member states, including:
- A policy brief on Debt management strategies and policies implemented during shocks, failures and successes; and
- A practical guide on Evaluating risks of sovereign debt portfolios
For additional information please contact Ms. Lee Everts at lee.everts@un.org
