AfDB Worries Over High Debt Levels of African Countries

The African Development Bank (AfDB) worried about the higher level of debt that African countries were carrying even before the onset of the Covid-19, when the debt stood at 61 per cent of Gross Domestic Product (GDP).

 According to the Bank Group, the structure of African debt has changed considerably. Bilateral debt now represents 27 per cent versus 52 per cent in 2000, whereas commercial debt accounts for 43 per cent of total debt up from 20 per cent in 2000.

Commenting on the issue in his speech at the Doha Forum, AfDB President, Akinwumi Adesina, said: “A multilateral approach demands that we understand the nature of the debt itself, what is changing and how we can respond to it. “The expansion and fragmentation of the creditor base has complicated debt settlement by the Bretton Woods institutions.”

The AfDB boss pointed out that one of the difficulties of debt resolution was the extreme length of time it takes. Of the four African countries – Chad, Ethiopia, Zambia and Ghana – that have applied for debt treatment under the G20 Common Framework, only Zambia has completed the process enabling it to benefit from the facility in 2023. Also, in his speech at the bank’s 2023 Annual Meetings in Sharm El-Sheikh, Egypt, Adeshina stressed that:

“Reforming the global architecture of the financial system and debt to reduce costs, time frames and the legal complications of restructuring African countries’ debts is a matter of urgency.”

He urged African countries to avoid high costs and limit the possibility of a new debt crisis, and to push for increased transparency and global coordination between creditors.

In a statement, the AfDB noted that the other debt-related problem was in the “Africa premium” that countries on the continent must pay when they access capital markets, despite data showing that default rates in Africa are lower than in other parts of the world.

It pointed out that while a Moody’s analysis of the default rates for global infrastructure shows that Africa ranks higher, at 5.5 per cent, than Asia, at 8.5 per cent and Latin America, at 13 per cent, the perception of risk in Africa, reflected by the global ratings institutions, results in an often unjustified increase in borrowing costs for African countries.