Is Sub-Saharan Africa Facing Another Systemic Sovereign Debt Crisis?
Our analysis suggests that, while another systemic sovereign debt crisis is not imminent, the rapid pace of the debt increase, as well as important changes in its structure and design features compared with that of the HIPC/MDRI era are concerning. Indeed, median debt as percent of GDP in the region has increased by a staggering 5 percentage points annually between 2014 and 2016. This pace of increase is not sustainable. Moreover, external and foreign-currency denominated debt is predominant, accounting for about 60 percent of total debt on average, exposing these countries to swings in global market conditions. The share of commercial debt is rising too, in part because of eurobonds issued by several countries. In this respect, the current debt build up is different than what occurred during the HIPC/MDRI era. This trend suggests that debt sustainably thresholds are now lower, as already evidenced by relatively high debt servicing costs. Finally, the credit base is now more diffuse. While the plurality of creditors allows for a diversification of funding partners, it makes eventual debt resolution mechanisms more complex. The debate around another debt crisis less than two decades after major debt relief, serves as reminder that progress has not been sufficient to address the structural issues that constrain sustainable development financing in Africa. Notably, domestic saving rates have remained low at around 15 percent of GDP, on average, since early 2000, despite various initiatives over the past two decades to improve tax revenue collection, combat illicit flows, address profit shifting by multilateral corporations, and strengthen governance in natural resource management. Meanwhile, the financing needs for infrastructure are expanding with rapid population growth and urbanization, and multilateral development banks’ financing in that sector has been meager.