The International Monetary Fund (IMF) has warned African countries are increasingly threatened by economy crippling debt, despite overall economic growth across the continent.
The global financial institution says heavy borrowing and massive deficits are behind the trend, as sub-Saharan African governments increasingly tap into global debt markets.
Spurred on by massive investor demand for government bond yields, some African states are also issuing “record levels” of foreign currency debt, pushing their countries to the brink of debt distress, the IMF said.
It said that about 40% of low-income countries in the region are now in debt distress or at high risk, adding that refinancing such debt could soon become more costly.
In its recent outlook for the region, the IMF named six countries – Chad, Eritrea, Mozambique, the Republic of Congo, South Sudan and Zimbabwe – as being in debt distress as of the end of last year. The IMF also changed its ratings for Zambia and Ethiopia over the period from moderate to “high risk of debt distress.”
African governments issued a record $7.5bn (£5.6bn) in sovereign bonds last year – 10 times more than in 2016.
They have also issued or plan to issue over $11bn (£8.2bn) in additional debt in the first half of 2018 alone, the IMF said.
“The current growth spurt in advanced economies is expected to taper off, and the borrowing terms for the region’s frontier markets will likely become less favourable… which could coincide with higher refinancing needs for many countries across the region,” the IMF said.
IMF data showed that foreign currency debt now accounts for about 60% of the region’s total public debt on average.
Average interest payments increased from 4% of expenditures in 2013 to 12% in 2017.
The IMF projected the region’s rate of economic expansion will rise to 3.4% this year, up from 2.8% in 2017, boosted by global growth and higher commodity prices.
About two-thirds of countries in sub-Saharan Africa are seeing higher economic growth in 2018, with several economies growing robustly at 6% or faster.
Slower growth in South Africa and Nigeria – the continent’s two largest economies – dragged down the region-wide average. The IMF expects growth to rise in about two-thirds of African nations, but under current policies, that rate is expected to level out below 4% over the medium term.
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The IMF pointed out that African governments will need to turn towards internal revenue sources and ease their reliance on global debt markets.
“With debt vulnerabilities rising in the region, sub-Saharan African countries will need to further rely on sustainable sources of financing, making domestic revenue mobilisation one of the most urgent policy challenges for the region,” it said.