Africa was not spared by Covid-19 pandemic that shut down the world in 2020 and 2021. The virus appeared in Africa in mid-February 2020, almost three months after the first case of Covid-19 in China. On 13 April 2020, French president Emmanuel Macron proposed a cancellation of African debt to support the continent’s struggle against the virus. A few hours later, the G20 offered a suspension of payment for the poorest countries. Yet public debts had sharply increased all over the world.
The Covid -19 pandemic measures taken by the Paris Club and the G20 – such as the Debt Service Suspension Initiative (DSSI) for the so-called poorest countries was largely insufficient. Indeed, the measures was limited to temporarily suspended the repayment of a tiny part of the debts of the 73 countries classified as ”low-income,” or to restructure part of these debts on a case-by-case basis.
The moratorium, as well as the new loans ostensibly granted to fight the effects of the pandemic, was used to pay private and multilateral creditors as a priority, instead of to meet the needs of the populations on the ground.
Over two years after the pandemic, a third of the countries of the South are either over-indebted or in default. 60% of African countries spend more on repaying their debts than on health care, thus not meeting local needs. And the war in Ukraine is hitting African countries hard as they face rising commodity prices. Debt will remain a global topic until the world finds a way to create equity and fairness in the global value chains.
What is the responsibility of the International Financial Institutions and of countries of the North for this predicament? Can the temporary suspension of repayment that was granted solve the debt issue faced by African countries, which has been further aggravated by the Covid-19 pandemic? Are there no alternatives?
The 2024 edition of the World Economic and Investment Handbook focuses on the development of indebtedness in Africa. But the analysis can easily be extended to other countries of the South. It shows that the coronavirus pandemic and its many consequences aggravated a former situation of indebtedness but was not its cause. The pandemic was the catalyst, though all the ingredients of a new financial crisis have been present for several years, at least since 2017–2018. The study highlights the dramatic social and economic consequences of the health crisis, as well as its huge impact on public finances and indebtedness, both in the North and in the South. Finally, it shows that what the International Financial Institutions (IFI) have contributed are false solutions and that there are obviously better alternatives.
More fundamentally, it demonstrates that the logic of the global system has to be questioned to get to the roots of African countries’ indebtedness. One third of African States are either over-indebted or on the brink of over-indebtedness. The stock of Sub-Saharan Africa’s external public debt increased from USD 305 billion in 2010 to USD 702 billion in 2020, i.e. from 24 to 40% of the region’s GDP, and from 76 to 156% of its exports.
In 2022, the continent had to pay in all USD 44 billion in interest to its external creditors. In some African countries the debt service amounts to 60% of their revenues and countries spend more in repaying their debts than for essential services such as health care, education, providing decent jobs, access to electricity and clean drinking water. Moreover, Sub-Saharan Africa has become the arena of clashing interests between traditional creditors and emerging powers, further entangling it in a spiral of indebtedness.