Africa needs new thinking to resolve debt crisis 

In early April this year, Ramathan Ggoobi, Uganda’s secretary to the Treasury, tweeted about his trip to Washington DC to attend the IMF/World Bank Spring meetings.

Ggoobi said international funding is declining and non-concessional sources are getting more expensive. He added that the little money available (both concessional and non-concessional) is slowly moving to financing mainly climate-smart investments.

This IMF/World Bank Spring in Washington DC came at a time when a research paper titled “China as an international lender of last resort” was released by majorly Western academics from Harvard and other Western universities.

In this paper, the researchers found 128 bailout loans worth $240 billion to 20 mostly poor countries between the years of 2000 and 2021. The vast majority of these loans were extended over the last five years, and almost half happened in 2019-2021.

Moreover, the researchers found that the People’s Bank of China swap lines – innovative financial credit products – are far more meaningful than direct loans. This paper concluded that China is now extending credit to bail out its banks that made loans to African countries that undertook projects and were not economically viable to repay Chinese lenders.

Net transfers from Chinese lenders to developing countries turned negative in 2019 after peaking in 2016. What this means is that Chinese policy banks have morphed from being a source of capital to African countries into a new role of African debt collector.

One might think that the IMF will easily step in to bail out African governments because, for years, it has been the world’s greatest lender of last resort. This has become more complicated of late.

The IMF is struggling to get money out of the fund to economies that need it now more than ever. The IMF fund is sitting on a $1 trillion pile of cash that it is just not lending.

Why? The Paris club of Western countries, dominated by American rules, and China, on the other side, don’t agree on the rules of lending. This has made resolving debt crises on the continent harder, like we have seen in Zambia.

This further complicates the IMF’s lending strategy because the fund only lends to countries with sustainable debt ratios that, in its view, can easily pay the fund back. The IMF doesn’t lend African countries to pay Chinese loans. The IMF only lends to fix economies and help them with their balance of payments problems.

According to the IMF, public debt as a share of Gross Domestic Product reached an average of 56 per cent in 2022 in the whole of sub-Saharan Africa. African governments are now spending a fifth of their revenues to service debts.

The solution to Africa’s funding squeeze is for Africans to trust the international financing mechanisms less. African countries should build up reserves of cash and swap lines between various African nations so that we don’t have to need to rush to IMF as much as we do now.

African economies should grow their internal consumer markets and create a balance with its exports. Once African governments create a conducive environment for the creation of increase employment, investors will come into the continent.

sammyobedgiu@gmail.com

The writer is an agricultural biotechnologist and environmental activist