How to stabilise Africa’s debt: Strengthen public finances, reforms, sound environment

IN THE context of high global uncertainty, tighter global financial conditions, and rising borrowing costs, concerns about sub-Saharan Africa’s debt vulnerabilities are mounting.

- ATHENE LAWS, THIBAULT LEMAIRE AND NIKOLA SPATAFORA

But the region is tackling this issue head-on and public debt ratios have stabilized on average. Our analytical note in the IMF’s latest Regional Economic Outlook for sub-Saharan Africa uses a new data set to highlight when, how often, to what extent, and how debt stabilization was achieved.

Surprising frequency

Contrary to perception, countries in the region have often been able to stabilize or reduce their debt ratios without debt restructuring.

With more than 60 debt reduction episodes (defined as periods of two or more years during which the public debtto-GDP ratio fell), the probability that a country will experience such an episode in any given year is one in four.

And these episodes have occurred even amid an unfavorable external environment, including in the aftermath of the commodity super cycle and in the wake of the COVID-19 pandemic.

The debt decline in many cases was economically significant and persistent: most episodes involved a decrease of more than 10 percentage points of GDP, and almost half of those episodes lasted four or more years.