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Africa falls back into the debt trap

by drbyos

Ghana’s finance minister promised hand on heart: his country would never go back to see the International Monetary Fund (IMF). “Whatever happens, we won’t do it. The consequences would be terrible, we are a proud nation, we have the resources, we have the ability”assured Ken Ofori-Atta in February 2022, as clouds gathered over the Ghanaian economy, between the fall of the cedi, the local currency, and soaring interest rates.

Alas, ten months later, Ghana was lacking. Despite the oaths of the former investment banker, the West African nation has requested, for the seventeenth time since its independence in 1957, financial assistance from the Fund. A loan of three billion dollars (2.8 billion euros) was approved at the end of May, while the country’s bilateral creditors pledged to work towards a restructuring of its debt. A bitter epilogue for this ex-champion of African growth, stable, democratic and long acclaimed by the financial markets. Ghana is the second African state to have gone bankrupt since the earthquake caused by the Covid-19 pandemic. It was preceded by Zambia, unable to honor its external debt from November 2020. After endless negotiations with its creditors, China in the lead, to try to lighten the burden, an agreement finally seems to be taking shape.

The misadventures of these two economies feed the concerns of all those who brandish the threat of a new debt crisis in Africa, twenty years after the vast cancellation operations piloted by the IMF and the World Bank. These had reset the counters almost to zero in some thirty countries in the region. But the signals go back to red. In sub-Saharan Africa, public debt reached 57% of gross domestic product at the end of 2022, a level not seen since the beginning of the 2000s. According to the Fund, some twenty countries on the continent are now over-indebted or in the process of being so.

Untenable equation

“In reality, this is an international debt crisis; all regions of the world are concerned, and in Africa the amounts are ridiculously smallrectifies Carlos Lopes, professor at the University of Cape Town, South Africa. Imagine that all debt service payments in sub-Saharan Africa [21,4 milliards de dollars en 2022 selon Fitch] are roughly equivalent to what was put on the table in the United States to save the Silicon Valley Bank! »

You have 79.7% .. “”.

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