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Irresponsible Government Borrowing Caused Debt Crisis in Africa

Irresponsible government borrowing has caused debt in many African countries to reach crisis level. Now, a decade after a continent-wide write off, the debt is increasingly looking toxic with each passing day thanks to rampant corruption within governments, a cost that citizens are often forced to bear through higher taxes. Over the past 10 years, more than $80B in bonds have been issued to thirsty European investors by governments in Africa south of the Sahara, with public debt now making up about half of GDP.

Africa’s Debt Problem Hitting Crisis Levels

African governments have a taste for the finer things of capitalism, which often involves putting citizens up for austerity and signing away strategic resources as collateral to offshore loan sharks. In 1980s, governments borrowed heavily from the World Bank, the International Monetary Fund and the Paris Club until they were blacklisted for failing to honor their obligations. But this has not discouraged them from borrowing. Loans from the Asian economic giant are especially appetizing to most regimes because they come with no strings attached as far as issues of human rights, governance and democracy are concerned.

China’s aggregate loans to Africa reached $124B by end of 2016 from just a few millions 16 years earlier, according to figures compiled by the China-Africa Research Initiative (CARI) at Johns Hopkins University School of Advanced International Studies in the US. Several African countries such as Angola, Ethiopia, Sudan, Kenya and the Democratic Republic of Congo, topped the loan beneficiary list. To better manage its natural resource wealth, like oil, and to help facilitate social and economic development, Angola set up a sovereign wealth fund. Angola received about $21.2B, much of it going into the oil sector, building new cities and other infrastructure developments.

This is the fund, which Jose dos Santos, son of former president Eduardo, who managed it, is accused of pilfering to the tune of $500M. Dos Santos has since been arrested and placed under “preventive detention.” However, the allegations against him reflect more a widespread continental problem, in which high ranking public officials help themselves to state funds, putting the country at risk of defaulting on external debts.

Zambia “Sold” to the Biggest Lender

In most cases, government officials borrowed affluence starkly contrasts the breakdown of social services and the austerity that comes with the day of reckoning. Zambia, perhaps, epitomizes Africa’s evolving debt problem, not only in the sense of rising toxic Chinese loans, but borrowing in general. Rumors have swelled that the Asian economic powerhouse may attach some of the Southern African country’s infrastructure if it defaults. Given the lack of transparency by the Zambian government on its borrowing, there is a real danger that Zambia too might fall into the Chinese debt trap, said Sara Longwe, chairperson of Zambia’s Civil Society Organisations.

China in Zambia
Surgical Warhead Piercing Through the Heart of African Economies

Data shows that more than $80B in bonds have been issued to investors in Europe by governments in Sub-Saharan Africa, with public debt now making up about half of GDP. According to the World Bank’s “Africa Pulse” report debt rose in about two-fifths of African countries in 2017 and was above 60% of GDP in one-3rd of the countries. During 2018, government debt rose rapidly in Angola and Zambia, partly due to continued currency depreciation. Chad finalized the restructuring of its oil-collateralized debt, which would reduce the country’s debt service payments.

In Zimbabwe, external debt stood at $11.3B last year, nearly 80% of the country’s GDP, with the country having piled up arrears and interest, and penalty charges on existing payment arrears. For a country that piled up $5.2B debt in less than 10 years, since dollarization in 2009, the Zimbabwe government’s failure to guarantee basic services, such as safe drinking water, paints a typical conundrum. According to the report, non-concessional financing accounted for more than 50% of total public debt in 6 countries – Côte d’Ivoire, Ghana, the Republic of Congo, Sudan, Zambia, and Zimbabwe and more than 30% of total public debt in several other countries such as Chad, Senegal, Mozambique, and Ethiopia.

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