Fixing Africa’s triple set of dilemmas: high debt, large govt spending, collapsing currencies
Governments of highly indebted African countries need to take a number of steps to alleviate the stark trade-offs between servicing expensive debt, supporting high and growing development needs, and stabilizing domestic currencies.
While South Africa’s elevated public debt at 74% of GDP has almost doubled over the last decade, Kenya’s debt interest payment as a share of revenue rose from 11% to 20% between 2014 and 2020.
In Egypt, the greenback has become hard to come by amid a severe foreign currency crunch as the Egyptian pound is plunging and inflation is surging at 35%. This comes as the Egyptian state, highly indebted after years of heavy borrowing, has struggled to service its ballooning debt.
Ghana and Zambia have launched debt restructuring negotiations under the G20 Common Framework for Debt Treatment, while Chad had already reached an agreement to restructure its external debt in 2022. Other highly indebted countries struggling to service their liabilities may have to do the same amid rising concerns about slow progress of the Common Framework.
Government debt has risen in at least 40 African countries over the past decade, according to Jonathan Munemo, Professor of Economics, Salisbury University in the UK. In a recent article in The Conversation, Munemo suggests several ways how Africa states’ indebtedness and their collapsing currencies could be fixed. He notes that some are experiencing a bad combination of high debt, elevated development spending needs amid budget shortfalls, and unfavorable exchange rate pressures — this presents many countries with a triple set of dilemmas that’s not easy to navigate. Tackling any of one of these issues imperils the others.
Munemo proposes three steps that these countries should take: Firstly, governments should prioritize public spending measures that raise growth. Secondly, countries need to fix their revenue collection problems. Lastly, governments need to restructure their debt portfolios.
