The International Monetary Fund (IMF) has warned that debt vulnerabilities in Sub-Saharan Africa remain high, with no less than 20 countries in the region at danger of or currently in debt crisis.
Papa N’Diaye, the Head of the Regional Studies Division of the IMF’s African Department, said in a new podcast produced by the global lender that the region’s debt burden was very high at a time when social and development requirements were quite high.
Unsustainable debt can lead to debt distress, which occurs when a government is unable to meet its financial obligations and must restructure its debt.
Despite the fact that the IMF president did not name the 20 African countries in debt distress or at high danger of debt distress, the most current data showed that eight countries worldwide were in debt distress, 30 were at high risk, 24 were at moderate risk, and seven were at low risk.
Burundi, Cabo Verde, Cameroon, Central African Republic, Comoros, Djibouti, Ethiopia, Gambia, Ghana, Guinea Bissau, Kenya, Malawi, Sierra Leone, Zambia, and Zimbabwe were among the African countries at high danger of debt distress at the time.
Except for Grenada, all of the eight countries in debt crisis are from Africa. Chad, Congo Republic, Mozambique, Somalia, South Sudan, Sudan, and Zimbabwe are among them.
According to the IMF official, debt servicing as a percentage of revenue has been rising, and the debt burden is quite high at a time when social and development demands are very high.
Despite a public debt profile of N39.556 trillion ($95.77 billion) as of December 31, 2021, and a debt service-to-revenue ratio of over 80%, Nigeria is not classified as a debt distress or high-risk debt distress country.
“So for nations in the region, the room to deal with the impact of the war in Ukraine is very limited, and painful choices will be required,” N’Diaye added. First and foremost, we believe that countries should prioritize assisting the most disadvantaged populations, mostly through targeted transfers whenever possible, particularly in countries with strong social safety nets.
“Those who don’t have those safety nets may have to rely on food stamps and tax cuts.” However, given the limited fiscal space that governments have, initiatives will almost certainly need to be limited in scope and time.”
He emphasized that Sub-Saharan African countries must aim to make more room by boosting domestic income mobilization and ensuring that they receive the most bang for their buck by improving public spending efficiency.
“The economies of Sub-Saharan Africa grew very strongly in 2021,” he says. For 2021, we expected the region’s average growth rate to be around 3.7 percent. It was discovered to be 4.5 percent. The majority of the year’s positive surprise, or momentum, began in the second half.
“However, the conflict in Ukraine has put a halt to that momentum.” It resulted in a considerable rise in commodities prices as well as increased volatility in global financial markets.”
“We are now seeing inflation in double digits for the region as a whole above, I believe, 11.5 percent by 2021,” he added, adding that inflationary pressures had intensified significantly. If you look at the period average, we predict it to be around 12.25 percentage points.
“And this is the first time we’ve had a double-digit inflation forecast since 2009.” And it is primarily due to increasing food and energy prices.
“As you might expect, this will have a significant impact on the region’s most vulnerable citizens, increase poverty, and potentially exacerbate social tensions.” Dealing with this inflation and pressure would be difficult for policymakers in the region, particularly central bankers, because of… also the impact that measures may have on growth.”
